Serbia heeds IMF guidelines to cut public spending

BELGRADE (Reuters) – Serbia will cut some state subsidies and slim state administration to slash this year’s budget deficit to levels agreed upon with the International Monetary Fund, Finance Minister Mladjan Dinkic said yesterday. Dinkic said the measures were necessary to counter a surge in inflation, which rose above 10 percent in July on the back of robust economic growth, expanding wages and the weakening dinar. «We must resort to tight fiscal policy that will halt inflation, no matter how unpopular that might be,» Dinkic told Reuters in an interview. At an earlier news conference, he said the government would submit a budget amendment to Parliament in October. Spending would be cut to 359 billion dinar ($6.20 billion) from 374.64 billion, while the deficit would be slashed to 30 billion dinars, or 2.5 percent of gross domestic product, from 45 billion in the current budget. Dinkic acknowledged that the spending curbs would slow down Serbia’s surging economy. The government says it expanded by 6 percent so far this year, after a meager 1.5 percent in 2003, thanks to strong domestic demand and bumper harvest. «We must curb inflation at the expense of growth but growth will remain above 5 percent,» he said. The rightist government of Vojislav Kostunica has taken a tough line on public spending since taking power in March, despite simmering labor protests. In April, the government promised the IMF it would slash the deficit to 2.5 percent of GDP – a condition for continued financing from the international lender. The government’s tough line on loss-making firms and plans to relaunch privatization have angered many Serbs. Support is rising again for the nationalist Radical Party and the ruling conservatives and liberals may suffer in local elections on September 19. But Dinkic ruled out giving in to pressure to relax the policies agreed to with the IMF. «We are well-placed to fulfill all performance criteria agreed with the IMF,» he said.

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