IMF Accepts Serbian Methodology But Defers Tranche Payment

by Lorys Charalambous, Tax-News.com, Cyprus

08 September 2009

Concluding its mission in Belgrade, Serbia, the International Monetary Fund announced that it will delay providing the second tranche of its standby arrangement with the Baltic country until the two parties convene in October, in order that Serbia’s proposed measures, announced last week, can be developed.

Controversially the Serbian authorities rejected the Fund’s recommendation that it hike value-added tax, in favour of deep cuts to government expenditure.

In a statement on the conclusion of the IMF mission, Albert Jaeger, head of the delegation, explained that:

“The [Serbian] authorities considered tax increases as unacceptable, and instead proposed to undertake a more ambitious and comprehensive strategy of multi-year spending reforms.”

“The mission was open to this idea, not least in view of the considerable claims Serbia's large public sector makes on the economy. However, both sides agreed that a determined implementation of the spending-based reforms would be crucial to avoid tax increases, and it was clear that more time was needed to elaborate such a strategy.”

Jaeger noted that the International Monetary Fund supported the Serbian government's plans to retain taxes at current levels, because of ‘encouraging signs’ that the global financial crisis’ effects on the Serbian economy appears to be ‘moderating’.

“While developments in the first half of the year have been somewhat worse than previously anticipated, financial tensions have eased. We expect output in Serbia to stabilize in the second half of the year, consistent with the output decline of 4% for 2009 as a whole."

"Next year, a modest recovery of 1.5% percent is projected, and risks to the growth outlook are now more balanced. Inflation has been within the targeted band and the large current account deficit has been falling rapidly,” Jaeger noted.

Jaeger went on to reveal that broad agreement had been reached on Serbia's proposed austerity measures, including comprehensive medium-term reforms and retrenchment in the areas of public administration, large state enterprises and local utilities, pensions, health and education.

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