The Serbian Parliament adopted a national budget for 2007 late on Friday (June 22nd). Lawmakers from the ruling coalition voted to collect 7.1 billion euros in taxes and spend 7.3 billion euros. The budget calls for a 200m euro deficit, said to total 0.6% of GDP. It will be covered by privatisation revenues. This, together with abundant public spending, is likely to raise eyebrows at the IMF.
The country’s Central Bank is displeased. According to Bank Governor Radovan Jelasic, politicians acted on their election promises without heed for the consequences. Half of the budget goes to salaries and pensions, thanks to raises for public servants at both the state and municipal level, as well as employees in the public health and education sectors.
The deficit is actually closer to 2.5% of GDP, rather than the 0.6% claimed by the government, Jelasic says.
“I do not know a single state that plans to increase salaries 13.6 % over inflation of 6.5%, like Serbia does,” he says. “That certainly will not make us more competitive or ensure better exports. On the contrary, it will only increase our imports even more. In the end, the Central Bank will get the blame because the Serbian economy is not competitive.”
Finance Minister Mirko Cvetkovic may have been facing a mission impossible. He had to cover everything spent during six months of “temporary financing” — due to the protracted delay in forming a government. In addition, the budget had to reflect commitments previously made, as well as expectations for the second half of 2007. Added to that were the various campaign promises, such as a lowered tax on computer equipment and on first-time home purchases.
Meanwhile, the national investment plan — sharply criticised during the previous government — has been left with only 545m euros to spend. Another 505m euros are earmarked for public debt servicing, 780m euros for defence spending, 558m euros for internal affairs, 717m euros for education, and 191m euros for health. Serbia also plans to spend 66m euros on infrastructure projects in Kosovo.
Most government ministers are satisfied with their share of the pie, but not Defence Minister Dragan Sutanovac. The largest part of the military budget goes towards salaries and pensions, he says, and as a result the army will not be able to take steps this year towards modernisation and NATO standards.
Currently Serbia has 30,000 active military personnel and 55,000 retirees, as well as 12 active generals and 750 retired ones, which weighs down the defence budget greatly, Sutanovic says.