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Analysis of state-owned enterprises: Fiscal aspect

July 31, 2014

The state-owned and public enterprises threaten to sink the public finances of Serbia. Their overall adverse effect on the public finances had been growing over the past five years and, in 2014, has reached 3% of GDP. For some companies problems can be observed even at the level of basic business results (core business is unsustainable). Liquidity of companies has been vulnerable, so the state has intervened at the cost of growth of deficit and public debt. The problems of public and state-owned enterprises are not simple and require comprehensive and long-term changes both in the enterprises and in the economy.

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Fiscal developments in 2014 and basic recommendations for budget revision and medium-term adjustments 2015-2017

July 31, 2014

The danger of the outbreak of the crisis requires immediate implementation of fiscal consolidation. In 2014, the deficit will be approximately EUR 2.65 billion (8.3% of GDP), and the goal of fiscal consolidation should be reducing the deficit to below 3% of GDP in 2017 and reversing the growth of public debt. Fiscal consolidation is based on three pillars: 1) bringing in order public and state-owned enterprises, 2) reduction of unsustainable spending on pensions and public sector wages, 3) structural reforms.

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Summary of the report "Evaluation of the fiscal strategy 2014-2016 and draft 2014 budget"

November 26, 2013

The seriousness of the public finances situation in Serbia demands more decisive measures than those stipulated by the Budget Law and the Fiscal Strategy. The 2014 planned deficit of 7.1% of GDP (€2.4 billion) is too high, there are still no visible developments and a clear plan for solving the problems in the biggest money losers (Srbijagas) and the medium-term adjustment plan is not supported by the measures which could result in desired savings. Although the medium-term plan sets good goals in terms of deficit reduction in general, the measures to achieve this are unbalanced and, therefore, uncredible enough.

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Assessment of budget rebalance, structural reforms proposal and future fiscal trends

July 04, 2013

The Fiscal Council strongly supports the announced launch of structural reforms. However, the list of proposed reforms should include the pension reform which was unjustifiably omitted. The rebalance which reduces the budget expenditure was indispensable, but the Fiscal Council is somewhat sceptical about estimating its content. Limitation of pensions and wages indexation by the end of the following year is a fiscally responsible measure, but it will not be sufficient to reach the necessary deficit reduction in 2014.

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Budget implementation, assessment of Government’s measures and Fiscal council’s proposal for public finances stabilisation

May 23, 2013

Public finances in Serbia are in a very bad position. The fiscal deficit will exceed 5.5% of GDP in 2013 instead of the planned 3.6% of GDP, even with the latest Government measures for deficit reduction. The public debt which has already reached more than 60% of GDP will continue growing in both 2013 and 2014. Strong Government measures should be implemented as early as in 2013 and a credible plan for deficit reduction in the medium run. In order to achieve the first target, it is indispensable to adopt the budget rebalance as soon as possible and the rebalance will also have to include the measures for the control of public sector pensions and wages. So as to meet the second goal, it is necessary to finally start the implementation of the planned structural reforms, but also to make an arrangement with the IMF.

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Assessment of Local Government Finances in 2013

April 01, 2013

Current misbalance between the resources and responsibilities at the Republican and local governments’ levels causes a deficit in the Republican budget of 25 billion RSD, i.e. close to 0.7% of the GDP at the annual level. It is necessary to eliminate this misbalance in the shortest possible time, so as to embark on a 2014 budget year with a balanced fiscal position between the Republican and local governments. The optimum approach to resolving the fiscal imbalance implies returning the excessive resources from local to Republican level.

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Assessment of fiscal trends in 2012 and challenges for 2013 and 2014

March 11, 2013

Preliminary data for January and February 2013 confirm the assessments of the Fiscal Council from November last year – the 2013 deficit will exceed the planned 3.6% of GDP. We expect certain improvements in the coming months, but these will still not be sufficient to fully reverse the current trends. So as to avoid the public debt crisis, the deficit has to be reduced significantly in 2014 and there is still no plan for this. In this Report, once again, we would like to remind of the reforms which have to be launched in the first half of 2013.

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Assessment of the Draft 2013 budget law

November 13, 2012

In 2013, strong state deficit reduction is planned – from 6.7% of GDP in 2012 to 3.6% of GDP (from around RSD 220 billion to RSD 132 billion). Planned expenditure reduction is not prepared well enough and the state deficit in 2013 may exceed the planned one by around RSD 25 billion (0.7% of GDP), with certain risks for further increase. It is necessary to define quarterly expenditure execution targets and adopt conditional measures which would enter into force automatically if these quarterly goals are not achieved.

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Opinion on Fiscal Strategy for 2013 with projections for 2014 and 2015

November 13, 2012

Planned deficit reduction in 2013 provides only for temporary macroeconomic stability, while the public debt crisis has not been avoided yet. Draft Fiscal Strategy envisages fiscal deficit reduction as of 2014 exclusively by public expenditure reduction, but there is no planned additional increase in public revenue. However, the given program on how to achieve the reduction is not good enough. The Fiscal Council proposes a more detailed and longer list of concrete measures to the Government.

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Assessment of the 2012 supplementary budget and draft laws including fiscal effects

September 13, 2012

The current alarming state of public finance in Serbia demands decisive fiscal policy measures. Unfortunately, the government’s first response to this alarming situation, the supplementary budget, is ineffective although the structural measures related to tax policy and reduction of pension and wage growth are essentially good. If Serbia is to avert a debt crisis in the next few years, deficit reduction (fiscal consolidation) must be dramatic. Of the three groups of measures that can help avoid a public debt crisis, the Government has launched two.

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Fiscal Consolidation

May 30, 2012

Serbia is approaching a crisis of public debt which may even occur by the end of this year. Prevention of the crisis requires immediate measures; first, for it to be halted, and second, for the rehabilitation of public finances. The program of fiscal consolidation as advanced in this document suggests measures for addressing immediate problems in 2012 and 2013 and contains policy reforms which in the mid-term period (2014-2016) enables the consolidation of public finances, yielding significant decrease of public debt and reduction of general government deficit practically to zero.

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An Assessment of the Program Measures to Maintain the Fiscal Deficit of the Republic of Serbia

March 30, 2012

Fiscal Council supports any effort by the government of RS to reduce the budget deficit, but we estimate that the planned Program of measures for stabilizing the fiscal deficit will not provide sufficient savings even if fully implemented; probably the effects of these measures will be smaller than anticipated.

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Proposal for Harmonizing Different Methodologies of Public Debt Coverage and Measurement in Serbia

February 24, 2012

Fiscal Council holds that it is necessary to harmonize the Public Debt Law and the Budget System Law with respect to different capture and measurement of the public debt, so that such single calculated value of public debt can be in official use by all relevant government institutions. For this reason, we have conducted a research the purpose of which was to offer a proposal for improving Serbia’s public debt capture and measurement methodology. The basic criteria used in forming the proposal were the economic justification and compliance with the current international standards.

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Assessment of Fiscal Rules Compliance in 2011

February 21, 2012

The Fiscal Council holds that: 1) the general fiscal rule concerning the public debt level was violated; 2) the general fiscal rule concerning the government deficit level was not fully accomplished; and 3) the special fiscal rule determining the pension and public sector salaries trend was accomplished. Violation of the fiscal rule concerning the public debt poses the greatest threat for Serbia’s public finance since the debt has not only exceeded the legal limit of 45% of GDP but it will continue to grow in the medium term. The 2011 fiscal deficit was by 5 billion dinars in excess of the limit permitted by the fiscal rules. The real problem is not the slight increase of the 2011 deficit level but in establishing unfavorable trends of fiscal revenues. It is for this reason that the Fiscal Council is assessing that further adjustment of 1% of GDP will be necessary.

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Evaluation of the fiscal strategy report and Draft 2012 budget law

December 23, 2011

The envisaged fiscal deficit of 4.25% of GDP (153 billion dinars) is in conformance with the fiscal rules; there are, however, pronounced risks of the planned deficit overshooting. The Fiscal Council’s assessment is that at the close of 2011 the public debt will most probably be above the legal limit of 45% of GDP. There are strong prospects for the real growth of GDP to be lower in the next year than the planned 1.5%. In the medium run, lasting sustainability of public finance requires fiscal adjustment by 4.5 to 5 p.p. of GDP.

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Fiscal Council Press Release on the Establishment of the 2012 Fiscal Framework

November 10, 2011

Bearing in mind slower pace of economic activity in the Euro zone and current economic trends in Serbia, the Fiscal Council reduced the economic growth projection for 2012 from 3% to 1.5%. In line with the fiscal rule on budget deficit, the given modification would result in the increase of the allowed 2012 deficit from 3.9% of GDP as originally planned to 4.5% of GDP. However, the consequences of the lower economic growth will for sure include the overrun of the public debt limit of 45% of GDP in 2012 which was defined by the law. For this reason, the Fiscal Council believes the 2012 deficit should be below 4.5% of GDP.

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Assessment of the Proposed Revised Republic of Serbia Budget for 2011

September 29, 2011

Fiscal Council assesses that the proposed Republic of Serbia budget deficit increase by 22 billion dinars is in accordance with Fiscal Rules and Budget System Law. We positively assess the fact that deficit increase is not driven by the increase in expenditures, but is driven by the drop in revenues due to slowing of economic activity. We negatively assess the change in the composition of expenditures – whereby current expenditures have been increased at the expense of capital expenditures, which had been reduced by 8 billion dinars, from 32 billion to 24 billion dinars. We confirm that expenditures for public sector wages and pension had been budgeted in accordance with the indexation formula prescribed by the Fiscal Rules and the Budget System Law. Fiscal Council has identified risks that revenues might underperform, due to possible additional slowing down of economic activity by the end of the year.

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Analysis of the Fiscal Effects of the Draft Decentralization Law proposed in the Serbian Parliament by “Ujedinjeni Regioni Srbije”

June 8, 2011

We assess that the proposed model of fiscal decentralization would annually increase the budget deficit by 1.1% of GDP, ie about 40 billion dinars in 2012. Thus, the proposed model is not fiscally sustainable and its adoption requires considerable fiscal adjustment of 1.1% of GDP at the central government level. Otherwise, adopting the proposed decentralization model would seriously breach the Fiscal Rules, budget deficit in 2012 would be by one third higher than allowed – which would disrupt fiscal sustainability and macroeconomic stability.

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