Draft Law on Changes and Amendments to the 2008 Budget Law and Memorandum on the Budget and Economic and Fiscal Policy for 2008, with projections for 2010 and 2011, Adopted

At a session held on 02 October 2008, the Government of the Republic of Serbia adopted the Draft Law on Changes and Amendments to the 2008 Budget Law and Memorandum on the Budget and Economic and Fiscal Policy for 2008, with projections for 2010 and 2011.

The Draft Law on Changes and Amendments to the 2008 Budget Law of the Republic of Serbia specifies total revenue of the Republic of Serbia at RSD650.174,3 million, total expenditure and net borrowing at RSD695.959,1 million, while the stipulated deficit is RSD45.784,7 million.

Minister Dragutinovic underscored that the revenue/GDP ratio increased by 0.4%, the share of expenditure grew by 0.6%, whereas the deficit rose by 0.2%. “The increase in fiscal policy expansiveness was not outstanding, but it was realized in the atmosphere of high demand and overheated economy. It is necessary that we take a turn toward cutting the share of government expenditure and fiscal deficit in GDP as of 2009 already”, Diana Dragutinovic highlighted.

At a session held on 02 October 2008, the Government of the Republic of Serbia adopted the Draft Law on Changes and Amendments to the 2008 Budget Law and Memorandum on the Budget and Economic and Fiscal Policy for 2008, with projections for 2010 and 2011.

The Draft Law on Changes and Amendments to the 2008 Budget Law of the Republic of Serbia specifies total revenue of the Republic of Serbia at RSD650.174,3 million, total expenditure and net borrowing at RSD695.959,1 million, while the stipulated deficit is RSD45.784,7 million.

Minister Dragutinovic underscored that the revenue/GDP ratio increased by 0.4%, the share of expenditure grew by 0.6%, whereas the deficit rose by 0.2%. “The increase in fiscal policy expansiveness was not outstanding, but it was realized in the atmosphere of high demand and overheated economy. It is necessary that we take a turn toward cutting the share of government expenditure and fiscal deficit in GDP as of 2009 already”, Diana Dragutinovic highlighted.

Minister of Finance Diana Dragutinovic told a press conference in the Republic of Serbia Government building that new priorities of the new government will be to accelerate building of infrastructure, provide financial incentives for strategic investments, improve the situation of the pensioners, offer financial support to talented persons etc. A part of the priorities has already been realized through regulations and agreements, such as the Decree on Extraordinary Pension Increase, the agreement with FIAT, agreements with contractors hired for the building of infrastructure, the Decree on Talented Persons.

Minister of Finance Diana Dragutinovic highlighted that any attempt to realize all the promises given in the election campaign and all demands of budget beneficiaries and interest groups would result in considerable fiscal deficit increase. Furthermore, it is unlikely that the deficit could be financed, because expected privatization revenues are modest, domestic financial market is underdeveloped, the end to the global financial crisis is nowhere in sight, whereas Serbia’s credit rating is low and would drop even further if the policy were to be more expansive.

Diana Dragutinovic said that it would not be possible to cut major tax rates in the coming period, while Serbia will lose around 1% of GDP in customs revenues within the framework of the EU accession process over the next 2-3 years.

Presenting the macroeconomic framework for sustainable fiscal policy in 2009, Diana Dragutinovic said that consolidated government expenditure will be reduced from 45.4% of GDP in 2008 to 44.3% in 2009; furthermore, the fiscal deficit will be cut from 2.7% of GDP in 2008 to below 2% of GDP in 2009. The important points are the change in structure of government expenditure toward increasing the share of public investments (Corridor 10 etc.), enhanced government expenditure management and continued tax system reforms, as well as the intention to tackle the grey economy.

Expected real wage bill growth in 2009 is 2%, while the share of procurement of goods and services is estimated to decline from 7.2% of GDP in 2008 to 6.7% in 2009, whereas subsidies will also decrease from 2.8% of GDP in 2008 to 2.6% in 2009. Budget borrowing and recapitalizations are also expected to be cut from 0.9% in 2008 to 0.7% in 2010, while savings made on subsidies, borrowing and recapitalizations will be redirected toward public investments, primarily Corridor 10.