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The Government of the Republic of Serbia

In the service of citizens

Government adopts budget review proposal

Belgrade, 10 September 2012

Prime Minister and Minister of the Interior Ivica Dacic stated that the Serbian government adopted today a 2012 budget review proposal and a package of 12 laws which will regulate public finance and prevent the collapse of the state financially, adding that the aim of these measures is to stop further deterioration of the economy.

Mladjan Dinkic and Ivica Dacic

Dacic said at a press conference after the government session held today that the main goal of fiscal consolidation is to stop further deterioration of the economy.

This must be done in a situation where there is a large deficit, with a public debt whose financing is not easy, and where Serbia has the lowest salary in the region and the highest interest rates, with an unstable exchange rate and a declining production, he said.

He said that only then can we apply developmental strategies as without launching production we cannot get out of the crisis.

More than half a million pensioners whose income is less than RSD 15,000 will get the 13th pension in four instalments, the Prime Minister said and confirmed that the first payment is expected as early as next week.

The Prime Minister said that the government intends to protect the population groups that are most affected by the crisis, which means that salaries and pensions will not be frozen.

Dacic said that the measures adopted today will result in savings in the amount of €1 billion and that drastic cuts include reducing unnecessary state spending, including the abolition of various agencies, bodies and funds.

Excise duties and taxes will be increased minimally, there will be no layoffs in the public sector, but in the next six months, salaries and pensions will not increase as planned, but in line with real possibilities, said the Prime Minister.

The government decided that public sector wages and pensions can be increased 2% in October and 2% in April next year, while their adjustment should continue as provided by the fiscal rules as of October 2013.

The government aims to overcome the economic crisis with the least possible damage, he reiterated.

According to him, the struggle to overcome the crisis should not be just the task of the government, but of all those who are able to help.

Regardless of the period which gave rise to the crisis and whether it started in Serbia or in the West, there is no way out of the crisis if everybody does not their level best, Dacic said and called on businessmen to use the opportunity to show how one works for the state and the people.

Minister of Finance and Economy Mladjan Dinkic said that the most important anti-crisis measures include a VAT increase from 18% to 20%, abolishing 130 para-fiscal levies and duties, and limitation of salaries in the public sector, which may not be higher than RSD 162,000.

He stressed that the implementation of this programme should yield savings of RSD 26 billion in the last quarter of this year and RSD 120 billion next year.

According to him, in order to preserve the standard of living, a special VAT rate of 8% has been kept on food, the excise tax on unleaded petrol has remained unchanged while excise taxes on cigarettes have been increased.

The Minister said that the measures will result in bringing down the deficit from 7.1% to 6.7% by year's end.

Dinkic said that the programme for ending the crisis, in addition to deficit reduction, will reduce the speed of public debt growth, which will grow by inertia in the future, in order to be stopped in 2014.

The measures include abolishing 130 para-fiscal levies and duties, that will relieve the economy of Serbia, said the Minister, adding that as of 1 January 2013 small and medium-sized enterprises will have the option to pay VAT after they receive the payment for the goods.

The government decided to increase the excise tax on cigarettes and diesel fuel, he said noting that taxes on dividends and interest income have been increased from 10% to 15%.

Dinkic reiterated that more than half a million of the most vulnerable pensioners with incomes below RSD 15,000 dinars will get special assistance in the amount of RSD 16,000, and announced that the first instalment will be paid out already next week.

The Minister said that the government will adopt the budget for the next year by the end of October and it will be forwarded to the parliament in the second half of November, and added that together with the budget for 2013, the increase in profit tax from 10 to 12% will be adopted.

The crisis is very deep, there is little choice, either the crisis will destroy Serbia or Serbia will stop the crisis, Dinkic underlined and expressed his belief that Serbia will be able to cope with the crisis.

He also said that Serbia’s economy will have a decline in GDP between 0.5% and 1% this year.

By the end of the year Serbia needs approximately €1.5 billion to meet all its expenses and it will get the necessary money by borrowing on the domestic and international markets.

Dinkic said that it is planned to issue Eurobonds again in the amount of $ 750 million early next month.

He explained that that is a re-opening of the issue emitted by the previous government in the amount of $1 billion, which has not been realised in full.

Dinkic has confirmed that it is planned to take a direct loan from Russia in the amount greater than $300 million and said that the amount will be revealed by the presidents of Serbia and Russia Tomislav Nikolic and Vladimir Putin.

Minister of Agriculture, Forestry and Water Management Goran Knezevic said that after the revision, the budget for agriculture in 2012 will be approximately RSD 41 billion.

The revised budget brings us funds to pay for all of this year's subsidies in agriculture and will enable us to enter 2013 without a cent of debt to agricultural producers, Knezevic said.

The Minister said that the adoption of the budget revision in the Serbian Parliament will allow for the use of extraordinary measures to mitigate the effects of drought, as proposed by the relevant ministry and approved by the Government.

According to him, the exact value of the damage from the drought is still not known because local self-governments have still not sent all the data, but it is certain that the damage is huge which in the natural form is reflected in the fact that this year’s crop dropped by 50%, while in the market prices the damage surely exceeds €1 billion.

Knezevic announced that the Ministry in the next few weeks will propose a law on incentives in agriculture, which will create an environment in which farmers will be able to plan their production in the long term.

This law, he added, should be adopted in November along with the budget law, after a public debate.