BELGRADE – Serbia’s public finances are set to worsen in 2007, with more spending and lower taxes bound to drive the budget gap to 3 percent of gross domestic product (GDP), a senior International Monetary Fund official said yesterday. Harald Hirschhofer, the IMF’s resident representative in Belgrade, said in a newspaper article that Serbia could ill afford to loosen the fiscal reins, which would ultimately result in a widening current account deficit and rising external debt. «In Serbia, all sectors are in deficit…,» Hirschhofer said in an article due to be published in several local newspapers. «Companies, which overall make heavy losses, households, which borrow heavily from banks for new appliances, and the government, which now spends more than it taxes,» he said. «This accounts for the huge current account deficit of 12 percent of GDP. And that accounts for the rapid rise in external debt to well over 60 percent of GDP,» he added. External debt surged to $19.6 billion in 2006 from $15.5 billion in the previous year. The outgoing government of Prime Minister Vojislav Kostunica reported a 30.3-billion-dinar ($497 million) budget surplus in 2006, around 1.5 percent of GDP. The figure, however, included revenues from the sale of a mobile license and the IMF estimates that without the one-off windfall Serbia had a budget deficit of 1.6 percent of GDP. This year’s budget plan prepared by the Kostunica government aims for a 0.7 percent surplus and $10 billion in revenues, but excludes a $2 billion investment program aimed to improve infrastructure, health and education. With this spending factored in, the 2007 shortfall would climb to 3 percent, the IMF estimates. «This is the route to macroeconomic crisis. This is not the way to go,» Hirschhofer said. Last week Bozidar Djelic, a politician mooted as the possible next prime minister, said the current 2007 draft was too optimistic and that the new government, yet to be formed after a January 21 general election, should aim for a balanced budget.