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The Government of the Republic of Serbia

In the service of citizens

Budgetary deficit at its lowest in the first quarter of 2005

Belgrade, 5 April 2005

Serbian Minister of Finance Mladjan Dinkic said that the first quarter of 2005 has been marked by four basic characteristics, notably accelerated structural changes, a record low budgetary deficit, a 42 percent drop in the foreign trade deficit and a reduction in inflation by 1 percent, recorded from December 2004 to February 2005 at 0.8 percent.

Dinkic told a press conference that the March budgetary deficit was 2.4 billion dinars, which is half that of the same period last year and one-fourth of the total in the first quarter of 2003. He concluded that Serbia will have one of the lowest budgetary deficits in Europe.

The budgetary reserves stand at 22.5 billion dinars, with the funds mostly collected from privatisation of companies and state banks, the Minister said.

He said that privatisation revenues in the first quarter totalled 15.3 billion dinars, which is four times that of 2004’s total privatisation revenue.

The March budgetary revenues came in at 33.4 billion dinars, expenditures 35.2 billion dinars and the resulting deficit 1.8 billion dinars, the Minister said and stressed that in March a substantial part of the nation’s foreign debt was paid off for the first time. Three billion dinars were set aside for the repayment of debt to the Paris Club of Creditors and the World Bank alone.

When compared to the same period last year, budgetary revenues rose 25 percent, mostly attributable to the introduction of the value added tax (VAT).

Profit tax revenues increased by 75 percent in relation to the same period last year, the Minister said while pointing out that the 10 percent rate is the lowest in Europe.

Dinkic explained that changes to the structure of the excise tax caused an increase of 75 percent in the amount of revenue collected from excise tax on domestic cigarettes, though the tax revenue for imported cigarettes fell by 37 percent. He said that the total revenues from the excise tax have increased by 13 percent, adding that the cigarette imports have been reduced thus positively impacting Serbia's foreign trade balance.

Speaking on the foreign trade balance, Dinkic said that the deficit has been halved and that exports in the first two months of 2005 grew 57 percent against the same period last year, reaching $602 million, whereas imports stood at $1.15 billion.

Noting that exports to developed countries are on the increase, Dinkic said that Serbia mostly exported to Bosnia-Herzegovina and Germany, while export growth was also recorded in trade with Slovenia and Croatia. On the other hand, among the greatest importers to Serbia are the Russian Federation with energy products, followed by Germany and Italy.

In the first two months, a foreign trade surplus was recorded with four former Yugoslav republics -including €30 million with Bosnia-Herzegovina, €6 million with Slovenia and €14 million with Macedonia. A surplus was also recorded in trade with Belgium, the UK, Greece, France and Cyprus.

Dinkic said that exports have been on the increase since the second half of 2004 and grew by 50 percent over the level in the same period last year.

Among the largest Serbian exporters are car tyre maker Tigar and steel products firm Sartid (US Steel Serbia), as well as manufacturers of sugar, sheet metal, polyethylene and footwear, Dinkic said.

Dinkic pointed out that the bulk of imports consisted of money spent on oil and gas.

Dinkic went on to say that Serbia no longer depends on the loans from the International Monetary Fund (IMF) to maintain its foreign currency reserves as they are large enough, standing at $4.3 billion, or two and a half times larger than the total dinar money supply.

He announced that a delegation of the government and the National Bank of Serbia will head to Washington on April 14 to hold meetings with IMF and World Bank representatives.

Dinkic expressed hope that the IMF will accept Serbia’s demand to prolong the current triennial arrangement, noting that it will not affect the debt write-off to the Paris Club of creditors.