Serbia said on Wednesday it has secured a €3 billion loan from the International Monetary Fund -- a plan that would help it stabilize its economy and reassure investors that its policies would stay on track.
Deputy Prime Minister Mladjan Dinkic issued a statement saying that Serbia has reached the deal, while the IMF declined any comment, with deadline for a deal expiring on Thursday.
Sources familiar with talks told Reuters that “a few more things needed to be fine tuned before it could be treated as a done deal”, and the government scheduled a 1030 news conference on Thursday to announce details of the agreement, which would make Serbia the second country in a day to win IMF bail-out money.
Earlier in the day, the IMF announced a €20 billon IMF-led rescue plan for Romania, designed to thwart a financing crisis and stabilize its stricken economy.
“The agreement reached with the IMF is very important for Serbia, for bringing stability to our financial system,” Dinkic said. “We expect €3.0 billion worth of IMF support over the next two years, of which €2.2 billion in 2009.”
But a senior source told Reuters: “The agreement refers to a 3% of GDP fiscal deficit, but there are still problems with the structure of the deficit.” The key problem was a freeze in pensions, to match the public sector wage freeze.
The program, replacing a $520 million loan approved in January, relies on a cut in state spending to reflect underperforming fiscal revenues as a result of economic downturn and state administration would bear the brunt of the adjustment.
Earlier in the day, Deputy Finance Minister Slobodan Ilic said defining the extent of Serbia’s economic contraction in 2009 and therefore the size of its budget gap was the key stumbling block in talks with the IMF. “It seems that the government has agreed to a 2% contraction estimate,” another senior official told Reuters.
GDP figures will dictate belt-tightening measures, which include an 18-month public sector wage freeze, tax hikes to boost fiscal revenues and price caps to keep inflation in check.
“Everything revolves around GDP,” Ilic told Reuters in a phone interview. “The IMF (International Monetary Fund) is more pessimistic than us in terms of expected recession in Serbia. They say that a 2% GDP contraction is likely. We see flat or negative 0.5% growth in 2009.”
Independent analysts see Serbia’s GDP contracting by up to 5% in 2009, following years of average 6.7% growth.
Looking beyond the IMF backing, Serbia will ask the top ten creditors of its private sector banks and companies for a two-year refinancing deal to ease liquidity problems due to the global credit crunch.
EU Enlargement Commissioner Olli Rehn said in Brussels on Wednesday that the EU would back Serbia’s plan to ask foreign banks to roll over €5 billion of private debt. Dinkic said Serbia expected the IMF to back this initiative.
In 2010, a further €3.3 billion in long-term debts mature in 2010 but total 2010 maturities are difficult to assess without the deal with creditors, officials said.
Central bank and government officials will meet creditors from Greece, Italy, France and Austria in Vienna on Friday.
Asking for private sector debt refinancing is part of a wider Central and East European initiative, a region whose growth depends on foreign credit and investment, Ilic said. “The initiative will be discussed at G20 meeting next month.” (Reuters)