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Serbs adopt tighter budget, brace for ‘09 slowdown

  Serbia on Monday adopted its 2009 budget a couple of hours before the legal deadline, cutting the fiscal gap to 1.5% of GDP in line with the International Monetary Fund’s advice.

“I am an optimist, I believe in Santa Claus even though I am 50 and I believe Santa Claus will bring our citizens the budget,” Finance Minister Diana Dragutinovic said before the budget was adopted by 129 deputies in a 250-seat parliament. Failure to adopt the budget would have forced Serbia into temporary financing, which allows the state to spend up to 25% of last year’s budget revenues per quarter.

On Friday, Prime Minister Mirko Cvetkovic urged all deputies to adopt the bill by Dec. 29. It endorses investment in infrastructure, seen as the key to help Serbia handle the global economic slowdown. Cutting the fiscal gap to 1.5% of GDP from 2.7% this year was the key IMF requirement for the 2009 budget, which sees spending at RSD 748.3 billion (€8.5 billion).

A third of the 2009 budget, around 7% of GDP, will subsidize the state-owned, pay-as-you-go pension fund. Around RSD 40 billion (€450 million), will be spent on debt repayments and just as much on capital investments.

Weaker demand and lower commodities prices are expected to weigh on Serbia’s economy in 2009, when the government sees growth at 3.5% at best, after an estimated 6-7% this year. It also expects inflation to fall to 6-10% from an 8-12% band this year.

In November, Serbia and the IMF agreed on a $516 million stand-by deal, which the Fund is due to approve in January. The lender has advised the Balkan country to tighten spending to ease price pressures, cut its current account deficit from 18.5% of GDP and ensure sustainable growth.

The government sees the current account gap falling to 16.3% in 2009. Serbia’s wide current account gap and high external financing needs to service a large amount of private debt have led Fitch Ratings to revise its outlook to negative from stable, while keeping the country ceiling rating at BB-.

A limited availability of foreign funding could weigh on Serbia’s dinar currency and the country’s hard currency reserves, Fitch said. The dinar was one of the biggest losers since October, as risk averse investors dumped eastern European assets due to the global financial turmoil. (Reuters)