European Union Economic and Finance Ministers have asked Serbia to speed up strengthening of its fiscal consolidation, reform the public administration and pension system, inviting the authorities to address the problem of non-performing loans, complete restructuring process of state-owned enterprises and reduce subsidies and state guarantees, said Head of the European Integration Section of EU’s Delegation to Serbia Freek Janmaat.
In first recommendations of its kind that are result of a new EU approach on candidate countries’ economic governance, the Ministers also asked Serbia to improve the business environment and support private sector development as well as to increase labour market flexibility.
The recommendations “are not part of the acquis,” meaning they are not legally binding, but rather advices based on good practice of EU member states and therefore agreed and jointly adopted with Serbia’s Finance Minister Lazar Krstic and National Bank Governor Jorgovanka Tabakovic, Janmaat told reporters.
“We will monitor the implementation,” Janmaat said, adding that first assessment will be included in country’s annual progress report in October.
Having assessed government’s plan for strengthening fiscal consolidation, EU Ministers recommended Serbia to take “additional measures to reduce the budget deficit in2014 ” Janmaat said, adding that “we would very much welcome a mid-year budget review. ”
The Ministers also asked Serbia “to further support the envisaged medium-term consolidation path by credible public sector reforms.”
“To this end, the authorities are encouraged to implement the public administration and pension reforms planned in the programme, by standardising salary grades for public officials and taking steps to revisit employment in the public sector in a sustainable manner, as well as limiting possibilities for early retirement and gradually increasing the retirement age for women,” according to the conlusions drawn at the the Ministerial Dialogue between the Economic and Finance Ministers of the EU and the Candidate Countries in early May.
Serbian authorities are also asked to further strengthen public finance management, notably by improving the capacity of the tax administration and to address the high burden of non-performing loans on bank balance sheets, the conclusions said.
Serbia should “complete the restructuring process of state-owned enterprises, review the efficiency of all forms of state aid and take steps to reduce subsidies and state guarantees, and improve governance, in particular in large loss-making state-owned enterprises,” the Ministers recommended.
The new government is also encouraged “to improve the business environment and support private sector development, notably by reducing the scope of para-fiscal charges and simplifying the regulatory environment (“regulatory guillotine”) and the process of dealing with construction permits.”
Serbia is also expected to increase labour market flexibility and reduce rigidities by extending the maximum duration of short-term employment, linking severance payments to the number of working years with the current employer, and simplifying the structure and calculation of salaries and compensations.
The recommendations were made before new government announced its economic recovery program, Janmaat said.
“I think the main thing is that the intentions are there, the announcements are made and we feel that most of the announcements are good but now it’s really up to the actual implementation,” he said.
If no further consolidation measures were taken, the EU forecast budget deficit at around 6 percent of the GDP, while the governemnt debt would likely surpass 70 percent of the GDP. According to the EU Spring forecast for Serbia, in case of status quo, expected GDP growth in 2014 is 1.1 and 1.9 in 2015, a significant fall from last year’s 2.5 percent.
