Import surge seen as risk to Serb economy
BELGRADE (Reuters) – Serbia’s surging imports, fueled by expanding consumer demand, may become a problem for the economy should a new Serbian government decide to keep spending at high levels, analysts said. Following an inconclusive January 21 election, Serbia still has no new government and no budget for 2007. The outgoing cabinet of Prime Minister Vojislav Kostunica left behind a $10 billion draft budget, but economists warn that some $500 must be chopped off the spending if Serbia is to remain stable. «The rising imports have so far absorbed growing consumer demand and offset inflationary pressures,» said Stojan Stamenkovic, head analyst at the Economics Institute think-tank. But if the pace of import growth persists, it could result in a higher current account deficit or double-digit inflation, he told a news conference. The International Monetary Fund has warned that Serbia’s public finances were set to worsen in 2007 and advised a new government to keep fiscal reins tight to avoid a widening of the current account gap and a surge in foreign debt. Imports stood at $13.2 billion last year, and exports at $6.4 billion. The rise in imports is widely pinned on the firming dinar currency, which gained 9 percent against the euro, making it cheaper for Serbia to buy foreign goods. «Exporters want to take advantage of the cheaper euro and import the raw material they need,» said another researcher, Miroslav Zdravkovic. Stamenkovic said price hikes and even higher imports were a likely, but an undesirable alternative to high budget spending. «If the government opted to offset higher public spending with price hikes, then inflation would rise to almost 18 percent year-on-year. If they opted for higher imports, the current account gap would inevitably widen,» Stamenkovic said. Inflation fell to a 15-year low of 6.6 percent in 2006. «I would expect a mix of those scenarios,» Stamenkovic said. «Inflation may go up to 10 percent and the trade gap will rise, pushing the current account deficit to 12 percent of GDP.» But Serbia would not have too many problems if capital inflows remained strong through 2014, and would be safe as long as it attracts up to $3 billion a year, he added. Lower euro purchases from local exchange offices could also signal trouble, because those funds cover up to 40 percent of Serbia’s trade gap, he said. Currency purchases from exchange offices stood at $5.9 billion in 2006, while January-November borrowing abroad hit $3.36 billion.
