Debt-laden Serbia braces for painful reforms

BELGRADE - Agence France-Presse

In addition to excessively high public debt, which is estimated to hit 70 percent of country’s GDP by the year-end, Serbia is suffering from high unemployment. AFP photo

With one in five people unemployed and pensioners outnumbering those in work, Serbia is struggling with a record budget deficit and could sink into bankruptcy.
      
Prime Minister Aleksandar Vucic has pledged reforms, including cuts in the bloated public sector, but analysts warn concrete measures have yet to be taken and financial markets could punish Serbia for its failure to act.
      
The Balkan state is expected to post a record budget deficit of 8.0 percent this year, with growth forecast to reach 1.0 percent. But output could yet worsen by another 0.2 percentage points owing to devastating floods that struck in May.
      
Vucic, who was elected earlier this year on a promise to overhaul Serbia's ailing economy, said his cabinet was now ready to push through painful reforms that include increased taxes, as well as fresh cuts in the public sector and to generous subsidies.
      
"We have to do it and if we fail to do so in next six or seven months, we never will," warned Vucic, in power since April after a landslide victory by his conservative Serbian Progressive Party.
      
The cost of spending has become unbearable, Vucic said, warning that the EU candidate country could end up "in the position of Greece" and needing international aid if bold action is not taken.         "We have more pensioners than those employed, and of those, more than 50 percent work in the public sector. Who can put up with that?" he said.
      
Serbia's national budget, equal to about 8.0 billion euros ($10.87 billion), is struggling to cope, as it has to meet payments to 1.7 million pensioners and more than 700,000 public sector workers in a country of 7.2 million people.
      
More than 20 percent of the workforce is unemployed, and many of those with jobs barely survive on an average monthly salary equivalent to 350 euros ($475).
      
The budget is also burdened by up to 600 million euros ($815 million) per year in subsidies to 161 state-owned companies that should have been shut down a decade ago, Economy Minister Dusan Vujovic said.
      
There are another 400 state-owned companies that should be privatised by the end of 2016, Vujovic added, saying that the government will seek international investors to revive these firms.
      
Serbia -- the largest country to emerge from the 1990s break-up of Yugoslavia -- has to reform antiquated labour, privatisation and bankruptcy laws, he said.
      
Parliament is expected to adopt the reforms by the end of July.
                      
Despite the government's pledges, analysts say it is moving neither quickly nor resolutely to deal with the crisis.
      
Milojko Arsic, an economics lecturer at the University of Belgrade, said Serbia's deficit "would be the highest in Europe" this year.
      
At the same time, "the government's readiness to introduce sharp fiscal consolidation and implement overall structural reforms seems less certain now than when it was formed," he said.
      
A budget revision announced for June has been delayed until later in the year, and public-sector wage cuts have been pushed back to October.        

Timothy Ash, chief emerging markets analyst at Standard Bank, said that "expectations are very high now for this administration".
      
"They have promised much, they have a mandate for reform, and people expect them to deliver -- no excuses left," Ash told AFP.
      
"If they do not act, markets will penalise them, as debt ratios are approaching levels which raise concern over sustainability," he said.
      
Nikola Altiparmakov, of the government's Fiscal Council, forecast that the public debt would hit 70 percent of gross domestic product (GDP) by the end of 2014.
      
"If the government fails to implement reforms in the next six months... we are facing a serious threat from the public debt," Altiparmakov said.
      
"It is false dilemma whether we should cut wages or pensions or make savings in public companies. We have no choice, we have to do all three or we will collapse," Altiparmakov added.
      
Vucic insisted that there was no alternative to the package of highly unpopular reforms.
      
"This is a fight for our survival, we have to do it and we are going to do it," he said.