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The Government of the Republic of Serbia

In the service of citizens

Revised 2008 budget to up revenue to RSD 650.17bn

Belgrade, 2 October 2008

Serbian Minister of Finance Diana Dragutinovic said that the government adopted today the budget revision for 2008 by which the total revenue is increased from RSD 639.6 billion to RSD 650.17 billion.

Diana Dragutinovic at today's press conference

At the press conference after the government’s session, Dragutinovic said that the total expenditure has been increased from RSD 680.55 to RSD 695.95 billion, and specified that the total budget deficit went up from RSD 40.95 to RSD 45.78 billion According to Dragutinovic, the share of revenues in GDP increased by 0.4%, of expenditures by 0.6% and of the deficit by 0.2%

She explained that the budget deficit, resulting from the budget revision, will be met by accumulated privatisation revenues from the previous years and from accumulated surplus of the self-employed pension fund.

The Minister pointed out that the largest budget savings were achieved by the Ministry of Finance, the Ministry of Defence and the Ministry for the National Investment Plan, while the Ministry for Infrastructure, the Ministry of Labour and Social Policy had the largest spending related to pensions.

Dragutinovic said that the projected budget for 2009 will not fulfil all pre-election promises, because the fiscal deficit, which cannot exceed 2%, would in that case stand at 5%.

She stated that the government also formed a working group to monitor possible effects of the global financial crisis on Serbia, adding that apart from herself, the group will include Governor of the National Bank of Serbia (NBS) Radovan Jelasic, state secretaries at the Ministry of Finance Janko Guzijan and Slobodan Ilic and director of the NBS research centre Branko Hinic.

The Minister said that the working group will consult the banks doing business in Serbia and added that the first signs of the crisis have not had any significant impact on Serbia, because the country has enough reserves to wait for the crisis to pass.

According to her, Serbia’s economic growth results from the large inflow of capital up to €6–7 billion a year, therefore a possible consequence for Serbia might be slower economic growth.

Lower capital inflow might lead to reduced liquidity, that is, less investments and slower economic growth, which would leave us short of funds for infrastructure projects, said the Minister.

Dragutinovic noted that the inflation rate in Serbia currently stands at 9.5%, though it will most likely increase by end-year, and added that according to the government’s projections, the GDP growth rate this year should be 7% instead of 6.5%, as was the case in the past three years.

She said that the projected inflation rate for 2009 is 6%, adding that a fall in unemployment and the deficit of the current balance of payments, which this year stood as high as 18%, has also been planned.

According to her, macroeconomic risks for 2009 are a continuation of the huge growth in domestic demand and the shift of effects from the international financial crisis to Serbia.

Dragutinovic said that the adopted Memorandum on the budget and fiscal and economic policies for the next three years envisages a continuation of revenue-neutral tax reforms.

She added that the growth of real wages in the public sector next year must not exceed 2%, and the state will have to cut down current expenses, reduce subsidies, budgetary loans and recapitalisation in order to redirect funds to Corridor 10.

Consolidated public spending must be reduced from 45.4% of GDP in 2008 to 44.3% in 2009, and the fiscal deficit cut down from 2.7% to 2%, stressed the Minister adding that at least 50% of funds from the National Investment Plan will be used for financing Corridor 10.