International standards show Serbia’s Q1 budget in the red

BELGRADE (Reuters) – An official report on Serbia’s budget published yesterday showed a worsening first-quarter deficit, according to international standards. The Finance Ministry said these calculations indicated a shortfall of $144 million. This was equivalent to 0.6 percent of Serbian gross domestic product, compared with an International Monetary Fund estimate of a 1.5 percent entire-year deficit in 2006. The ministry said that, using local accounting rules, the first quarter recorded a budget surplus of 36 billion dinars ($599 million), six times higher than planned, versus a 9.1-billion-dinar deficit in the first quarter last year. But economists said the local method of calculation distorted the picture. In a statement released on its website (, the ministry said budget revenues rose 50 percent in the same period last year and spending fell by 7 percent. «When you take into account debt repayment to pensioners and spending on the investment plan, and treat a GSM license fee as non-recurrent revenue, the picture is not idyllic,» said Stojan Stamenkovic, chief economist at the private sector Economics Institute. «It actually shows a budget deficit of some 8.7 billion dinars,» Stamenkovic told a news conference. The official figures for the first quarter showed that with all those items treated according to international methodology, the budget was in the red. The IMF has urged policymakers to turn last year’s gap into a surplus of nearly 2.8 percent of GDP this year. In the first quarter, Serbia spent 9.4 billion dinars on an investment plan targeting infrastructure, health and education, and 8.9 billion dinars on repaying debt to pensioners. It also treated 25 billion dinars, which Austria’s Mobilkom paid for a GSM license, as current revenue. The Finance Ministry table also showed a 30 percent jump in value-added tax revenues, but economists said this had nothing to do with improved tax collection, but rather a 36 percent growth in retail trade. Ten weeks after an inconclusive January 21 election, Serbia has no new government and subsists on temporary budget financing. Last week, the outgoing cabinet extended the facility to end-June to keep state finances running while leaders wrangle over a new coalition. The temporary financing facility allows the government to spend some $4.2 billion in January-June, or $560 million more than in the same period last year. The plan boosts the share of wages to 28 percent from 21 percent and includes 24-billion-dinar spending on the investment program. The central bank has repeatedly warned that loose state spending could trigger renewed monetary policy tightening to make sure that surging demand does not feed into inflation. Headline inflation rose to 5.6 percent in March from 5.2 percent in February, driven by higher state-regulated prices, while core inflation reflecting market prices remained tame, at the lower end of the central bank’s 4-8 percent targeted band.

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