Serbia needs to stop financing ailing state companies: IMF

Bloomberg

Serbia needs to stop subsidizing unprofitable state companies to lock in progress the largest former Yugoslav republic has made in cutting the budget, staunching one of the largest drains on state coffers, the local head of the International Monetary Fund said.
“Fiscal costs from loss-making state-owned enterprises need to be plugged,” said Sebastian Sosa in an Belgrade interview on Tuesday, ahead of the IMF’s staff visit that starts on Feb. 27 and runs through March 6.
Prime Minister Aleksandar Vucic promised the IMF to restructure, close or sell hundreds of money-losing companies that robbed the budget of as much as $1 billion a year. The list includes coal miner JP PEU Resavica, the Rudarsko-topionicarski basen Bor copper miner, and chemical producers Azotara doo and Metanolsko Sircetni Kompleks MSK. After Serbia pared its fiscal gap to 1.4 percent of economic output last year from 6.6 percent in 2014, ending aid to companies would “cement gains,” Sosa said, though “vested interests” may make trims more difficult.
Serbia needs to “stop with subsidies, debt repayment, financing these companies through arrears for electricity or gas, or arrears for social security payments” and find “a permanent solution,” Sosa said.
The IMF mission will study budget spending and how that will affect this year’s fiscal outlook, Sosa said. They will also discuss progress on completion of earlier agreements to “ensure that the structural reform agenda is completed in this final year” off the current three-year program.
CHEAP FUNDING
Vucic’s ruling Serbian Progressive Party has been able take advantage of cheap financing to cover deficits and debts after program support by the IMF helped the country restore investor confidence following a period of snowballing.
The economy will advance 3 percent in 2017 after a 2.7 percent expansion last year, mainly on “accelerated growth of private consumption and investment,” and inflation will reach the center of central bank’s target of 3 percent, plus or minus 1.5 percentage points, according to IMF forecasts.
In terms of monetary policy, the central bank has probably run out of room to cut interest rates any further as growth picks up and unemployment falls, Sosa said.
The National Bank of Serbia kept its benchmark interest rate unchanged on Tuesday, for the seventh month, citing an expected build-up of price pressures and concern over global market uncertainties and divergence in monetary policies of major central banks. The Serbian central bank should continue to monitor global trends and “be ready to act if the situation changes,” Sosa said.