The Serbian Fiscal Council announced today that the adopted review of the Serbian budget for this year currently offers the best possible economic and fiscal projections, although it is unlikely to be fully realized. As far as state aid is concerned, the “biggest and most irreversible” mistake is the one-off payment of €100 to each adult Serbian citizen who wants it – the Serbian Fiscal Council has said.
“We see the adopted budget review as a forced and transitional solution, the main objective of which is the timely implementation of the anti-crisis measures devised by the State”, said the Fiscal Council about the government’s budget review decree.
The Fiscal Council warns that nobody knows how long the epidemic will last or what impact it will have on Serbia’s GDP and cuts in public revenue, adding that the government will have to protect the population and help the economy by adopting new fiscal measures that will affect public spending and lending in 2020.
The Fiscal Council also said that parliamentary elections are scheduled for this year “after which, as a rule of thumb, comes the adoption of the budget review to monitor changes in the organisation of the new government”.
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“The biggest and most irreversible error that the government has made is approving the one-off disbursement of 100 euros to each adult citizen in Serbia,” the Council warns. Also, when assessing the anti-crisis package, the Fiscal Council has advised the Serbian government to withdraw from this measure.
According to their assessment, this measure is economically inefficient because it cannot affect the tangible and sustainable acceleration of the national economy and it doesn’t have a clear social objective since most of the funds are not directed to citizens who are financially disadvantaged and who really need financial assistance. It is also fiscally irresponsible because it pushes the country further into debt in a year when both the fiscal deficit and the public debt will record strong growth.
In addition, a large increase in the state’s budget deficit of around 7% of GDP (over EUR 3 billion) is expected, mainly due to the anti-crisis measures.
The revised budget foresees relatively large changes in both government revenue and expenditure, which will lead to a sharp increase in the deficit from previously planned 20 billion dinars to 381 billion dinars.
The Fiscal Council also argues that it is difficult to expect that the budgetary revenue and expenditure in 2020 will be fully in line with the adopted budget review, but also that the Ministry of Finance’s budget review assumptions are reasonable and a good basis for fiscal policy in the coming months.
The budget review also foresees a sharp increase in public lending in the financial market, which in the current circumstances, according to the members of the Fiscal Council, can be quite expensive.
“This type of Serbia’s debt strategy has not been explained in more detail in the revised budget and could easily prove unfavourable,” the Council warns.
“For this reason, we consider it rational for Serbia to negotiate more favourable credit agreements with international financial institutions (IMF, EU, EBRD and others) instead of relying exclusively on private investors in a currently unpredictable financial market,” the Fiscal Council suggested, underlining that “the state cannot increase illiquidity in the economy”.
“We believe that the government should pay particular attention to the execution of local government budgets. Much of the central government’s efforts are aimed at maintaining the liquidity of the economy during the crisis. Therefore, some parts of the country should not be allowed to do the opposite; due to possible problems in their budgets, local governments are simultaneously promoting illiquidity in the economy,” the Fiscal Council concluded.
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