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The Government of the Republic of Serbia

In the service of citizens

Government adopts 2005 fiscal plan

Belgrade, 1 November 2004

Serbian Deputy Prime Minister Miroljub Labus said that the government adopted a 2005 fiscal policy plan unanimously and forwarded it to the parliament for adoption.

From left: Mladjan Dinkic, Miroljub Labus and Slobodan Lalovic

Labus told a press conference that the 2005 budget is drafted so that it supports anti-inflationary growth, adding that government aims to keep the relatively high rate of economic growth next year.

The Deputy Prime Minister said that structural reforms in the corporate and banking sectors will be underway in 2005. He said that the privatisation process of banks will continue, while amendments to the law on enforcement procedure will reduce credit risk and interest rates.

One of the tasks will be to complete the restructuring of half of 63 companies, Labus said, adding that a special debt-restructuring unit was formed.

Minister of Finance Mladjan Dinkic said that the 2005 budget deficit is planned to be lower by a third than the 2004 deficit, and is expected to total 20.5 billion dinars, which is by 38 percent less than the 2004 projected deficit after the budget revision.

He specified that the planned revenues total 396.1 billion dinars whereas expenses amount to 416.6 billion dinars. He explained that the deficit will be covered from privatisation, foreign loans and donations amounting to 5.7 billion and net domestic financing in the amount of 6.8 billion dinars.

According to Dinkic, 2005 will see three times larger revenues from privatisation, expected to amount to 24 billion dinars, 8 billion of which will be allocated for the budget deficit.

Dinkic stressed that a 4.5 percent GDP climb is expected in 2005, adding that inflation in 2005 should total 9.1 percent.

He also said that introduction of the value-added tax (VAT) and annulation of the turnover tax for local administrations will cut revenues to local authorities, hence compensation through budgetary funds in the amount of 13.8 billion dinars.

To reduce the public debt, the budget will allocate an additional 13.6 billion dinars than the budget in 2004. The total expense of reducing the public debt will amount to 46.3 billion dinars, 27.4 billion of which will go for domestic debt (old currency savings) while 18.9 billion will go for foreign debt. The expense of financing the public debt will inch up by 2 percent in comparison with 2004, topping 5 billion dinars.

The state plans to cut subsidies by 2 percent, or by around 3 billion dinars, Dinkic said, noting that funds for the railway will be on this year’s level, topping 8.5 billion dinars, agriculture is to be funded by around 11 billion dinars, while subsidies for the state-run television RTS will be reduced to 2.5 million dinars. Subsidies in the economy are to be reduced by around 300 million dinars.

By reducing subsidies, the government clearly signals that it will not back the survival of socially owned companies that are using the money of Serbia’s tax payers, Dinkic said, specifying that reduction of subsidies will stimulate the restructuring of those companies and their privatisation.

He said that the budget of the Ministry of Economy will amount to around seven billion dinars, five billion of which are planned for subsidies, while the remaining two billion will go for capital investments.

In 2005, agriculture and water management will be funded by around 20 billion dinars, 3.1 billion will be used for cultural endeavours, one million will go for export stimulation, while one billion will go to the Guarantee Fund and National Housing Loan Insurance Corporation, Dinkic said.