Serbia and the International Monetary Fund on Friday agreed on the country's plan for 2006, paving the way for the lender's board of directors to approve the completion of a 2002-05 loan deal, the Fund said.
The agreement brings Serbia $180 million in the loan's last tranche plus $700 million of additional debt write-off from the Paris Club of creditors. It was reached four days after Serbia adopted a tight 2006 budget and a health reform bill.
"Over the past few days we have made good progress and reached an ad referendum agreement on pending issues," Piritta Sorsa, the head of the IMF mission in Belgrade, told a news conference.
"We have reached agreement with the government on the package that we will present to our board to decide. So it is positive," Sorsa said. She added the board of directors was expected to approve the loan deal by the end of January.
The agreement includes measures to tame Serbia's rising inflation, monetary policy measures to contain demand, the hiring of an adviser to help it part-privatise the NIS oil monopoly and the repayment of debt to pensioners.
"One of the prior actions the government has to make before we go to the board is to sign contract with the NIS privatisation adviser," Sorsa said.
Back in May, Serbia promised a tough pension reform and the sale of two state-owned refineries in order to win a six-month extension to the loan deal.
Faced with strong opposition from the public and populist parties, the minority government of Prime Minister Vojislav Kostunica backed down on both measures, opting instead to placate the Fund with macroeconomic belt-tightening.
Serbian Deputy Prime Minister Miroljub Labus said Friday's agreement had "eliminated all obstacles" for the loan deal to be completed and was a positive signal to foreign investors.
"The investment climate has improved, the agreement with the IMF will additionally contribute to investor safety and I believe we will very quickly see Serbia's BB- credit rating improved to BB," Labus told the same news conference. "For the sake of investor safety we are ready to continue talks with the IMF on a possible new agreement, not to draw funds but as a guarantee of external credibility and proof that the country is going in the right direction," he added.
To win the technical agreement with the IMF mission, Serbia set a 10.3 percent ceiling on wage bill growth for 2006 and agreed to repay debt to pensioners in cash, in six semi-annual instalments by July 2008, starting in December.
Finance Minister Mladjan Dinkic said the government had launched a fresh campaign to clamp down on tax evasion in order to raise funds to service the debt to pensioners.
Serbia needs 4.0 billion dinars ($54.9 million) for the first instalment and half was expected to come from Mobtel, Serbia's GSM operator, co-owned by an Austrian group, led by industrialists Martin Schlaff, Josef Taus and Herbert Cordt.
"We count on Mobtel's new co-owners to fulfil their obligations and pay 27 million euros in dividends. We need to know that next week. If they fail to do so, we will take compensatory measures," Dinkic said. He did not elaborate.