Extraordinary 10% Pension Rise

State Secretary Janko Guzijan’s interview to the national broadcaster RTS, 28 August 2008

After some three weeks of consultations, the government will consider the proposal by the Ministry of Labor and Social Policy regarding extraordinary pension increase in October 2008. The last proposal agreed with the Ministry of Finance, which adopted a positive opinion on the proposal of the Ministry of Labor and Social Policy, suggests that on top of the regular adjustment of pensions in October, pensions should be increased extraordinarily by further 10 percent.

State Secretary Janko Guzijan’s interview to the national broadcaster RTS, 28 August 2008

After some three weeks of consultations, the government will consider the proposal by the Ministry of Labor and Social Policy regarding extraordinary pension increase in October 2008. The last proposal agreed with the Ministry of Finance, which adopted a positive opinion on the proposal of the Ministry of Labor and Social Policy, suggests that on top of the regular adjustment of pensions in October, pensions should be increased extraordinarily by further 10 percent.

The state secretary underlined that the positive opinion of the Ministry of Finance is conditional, underscoring that the budget needs to be revised in order for the increase to be feasible and to provide funds to finance the increase. Guzijan highlighted that the current budget lacks funds for the ten-percent pension increase. However, the Ministry of Finance expects that the budget revision procedure will start soon not only because of pensions, but also for other reasons – due to elections, different changes, budget spending concerning revision of some budget positions etc. Guzijan also underscored that budget revenues this year are expected to increase, which is positive news, as the economic growth has been stronger than expected. “Therefore, instead of anticipated six percent, economic growth this year will be seven or above seven percent, and the inflation will also be higher, which has created an upward push on the revenues. We will use a part of the new funds to cover these and some other expenses”, state secretary Guzijan said.

“Some 8-9 billion is needed to cover the additional expenses, but we will have the precise data later on”, the state secretary reiterated. “The 8-9 billion include some 6-7 billion for the extraordinary ten-percent pension hike and 2-3 billion that would be lacking even without the ten-percent increase, because the inflation has been higher this year”, Guzijan said.

The state secretary highlighted that we are at the upper limit of our fiscal possibilities, which means that any further increase of public expenditure could either jeopardize macroeconomic stability, which would consequently mean that the rather high inflation would not be lowered and contained, or it may jeopardize economic growth.
On the other hand, we do not have money for any further increase in public expenditure.

Guzijan underlined that budget beneficiaries are making many demands, but it is common in any country, and particularly now, after elections, in Serbia. “The Ministry of Finance believes that the promises given in the election campaign can only be fulfilled during the four-year mandate of the government, and cannot all be realized within one year. The Ministry of Finance opposes the option of a tax increase, because we believe that taxes are already very high and the economy is under much strain”, the state secretary said.

The state secretary underlined that the solution would be to be patient and try to make some savings and cut the expenditure levels. “The Ministry of Finance can provide advices, however, we also need cooperation and enormous political support for our efforts from other ministries – we cannot decide on everything, because there would be no sense in having a government in that case, as the entire government would be the Ministry of Finance. The situation is rather serious and we urge for patience, because problems can only be resolved within 3-4 years”, Guzijan reiterated.

Commenting on Serbia’s credit rating, which received a low grade from credit institutions in March this year and which has not been improved since then, Guzijan said that Serbia’s credit rating worsened in March due to unfavorable events related with Kosovo and extraordinary elections in Serbia. When the pro-European government was formed, the unchanged credit rating was explained by precarious fiscal policy and the fact that the fiscal policy announced in the election campaign may jeopardize the country’s macroeconomic position. Guzijan underlined that there have been positive tendencies in the economy over the past two months and that the inflation has been curbed. “The inflation was 0.1 percent last month and it is expected to be 0.1 percent in August, which means that overall inflation for the first eight months will be 6.2 percent and if it continues at this pace, we will have a single-digit inflation. Furthermore, the growth has been strong – over 8 percent in the first quarter and is expected to exceed 7 percent for the entire year. This leads us to believe that cautious expectations of rating agencies will be dispersed and that we will provide for a good fiscal policy by preparing a solid budget”, Guzijan underlined.
With these results, the state secretary believes that the country’s credit rating will definitely improve, while a concrete consequence of that for Serbian citizens would be lower interest rates, for instance. “Тhis would mean that persons who borrow can get cheaper loans, at lower interest rates, as there would be more capital available, improved safety and more investments. The latter would take a little time, while the increase in capital will probably take place with improved credit rating and inflow of fresh capital via the banking sector and advanced offer of banking services”, Guzijan highlighted.

Commenting the announced lowering of customs duties after potential ratification of Stabilization and Association Agreement, the state secretary recalled that the SAA and the related interim agreement have been pending in the Parliament for the past two or three months since the SAA was signed. “Adoption of the SAA will mean lower customs duties, which is not good news for the Ministry of Finance because we will lose revenues, but it will be good for the citizens and the economy. As regards automobiles, if the SAA is adopted in September, and this is an assumption, it would immediately lead to lowering of customs duties from 20 to 17 percent, falling to 14% as of 1 January 2009 and
decreasing further until customs duties are completely removed. However, the Ministry of Economy proposed that the duty be immediately halved from 20 to 10 percent. Also, customs duties on various goods, such as food products, chemical products, plastic, paper, engines etc. will also decline after the SAA is adopted”, the State Secretary at the Ministry of Finance Janko Guzijan said.