BELGRADE: Serbia must now launch structural reforms to cut expenditure and ensure long-term economic stability and growth, a World Bank official said on Thursday.
Serbia wants to return to economic growth this year of about 2 percent of output, pinning its hopes on a rise of production in its joint venture with Italy's carmaker Fiat as well as on agriculture and its oil and gas industry.
The economy of the European Union candidate country is estimated to have shrunk 2 percent in 2012, on spillover from the crisis in the euro zone, its main trade partner, and a long drought last summer halved its harvest.
Serbia has already started fiscal consolidation and froze public sector wages and pensions last year, but that is not enough for long-term stability, Loup Brefort, the head of World Bank's office in Serbia, told Reuters.
"You cannot increase value-added tax every year, you cannot continue freezing wages and pensions ... so now the government must do structural reforms that will cut down expenditure," Brefort said on the sidelines of a business conference at the southwestern Kopaonik ski resort.
Brefort said the government should also cut subsidies for indebted or bankrupt state-owned firms scheduled for privatisation and reform its pension system by discouraging early retirement.
Serbia should also seek to cut public debt which the government hopes to limit this year to 65 percent of GDP.
But Belgrade must borrow to finance its deficit seen at 3.6 percent this year. It has already sold a $1.5 billion seven-year euro bond at a 5.15 percent yield and will also need more creditors at home and abroad to secure about 4.5 billion euros to service debt and interest payments.
"The key is really to bring down the budget deficit, and ... for the time being Serbia is borrowing at lower rates, but this is only increasing its debt," Brefort said.
To assure investors Serbia is seeking a precautionary arrangement with the IMF and the talks over a loan deal are scheduled to start no later than May 8.
The World Bank also plans to approve a $400 million loan to Serbia for budget support, provided Belgrade secures the IMF deal, and another $350 million in coming years for projects in agriculture, infrastructure and health system improvement, Brefort said.
<Center><b><i>Copyright Reuters, 2013</b></i><br></center>
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