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The Government of the Republic of Serbia

In the service of citizens

Agreement on seventh and last revision of SBA between Serbia, IMF

Belgrade, 22 February 2011

Minister of Finance Diana Dragutinovic stated today that the government has fulfilled all the obligations necessary for a successful conclusion of the seventh revision of the Stand-By Arrangement (SBA).

Diana Dragutinovic

Serbia and a mission of the International Monetary Fund (IMF) reached agreement over the conclusion of the seventh revision of the SBA which will enable Serbia to receive around €365 million to restock its foreign currency reserves.

Dragutinovic told a press conference that the budget deficit in 2010was less than projected, while the budget deficit for 2011 was adopted in line with fiscal rules.

The most critical item in the successfully concluded talks was the government’s platform which the Ministry of Finance prepared for negotiations with unions.

The basic elements of the platform state that the budget deficit cannot be increased and that the improvement of workers’ financial status has to be based on the principle of solidarity, Dragutinovic explained, adding that the platform implied that the improvement must depend on the dynamics of public revenues, with the assessment of revenues conducted quarterly.

The IMF insisted on setting boundaries when it comes to meeting the demands for a better position of employees and on making sure that expenses for salaries and pensions do not exceed RSD 10 billion, the Minister observed.

She said that the IMF asked for a socially just solution to the distribution of funds and on one-off payments.

It will be beneficial for the government, the economic players in Serbia and investors if agreement is reached about a new arrangement with the IMF, she noted.

Albert Jaeger

Head of the IMF mission Albert Jaeger stated that the mission and the Serbian authorities agreed on the principles, based on which salaries in the public sector will most likely be increased.

Salary increase depends on whether the revenues surpass the projected figures, and all increases will be one-off, which means that their effect will not be transferred to the budget for 2012. The increase will refer to the most vulnerable public sector employees and pensioners, Jaeger explained, adding there will be a top limit for overall spending for these purposes.

Salary increase as demanded by unions would jeopardise the fiscal balance and the stability of prices in Serbia, he added.

The greatest challenges in the upcoming period will be to keep spending within the projected fiscal frameworks, build up the economy’s competitiveness based on the private sector, reduce the public sector and restructure public companies, he observed.

The fundamental results achieved during the two-year arrangement with the IMF are halting the hike in public spending, developing the financial market, achieving a Vienna Agreement with foreign banks to maintain credit exposure in Serbia, securing support of international financial institutions for financing budget deficit and infrastructure, limiting the budget deficit and incorporating fiscal rules into the Law on the budget system.