IMF says 'likely' to start loan talks with Serbia

BELGRADE: A mission of the International Monetary Fund will visit Serbia in mid-November and "likely" start talks on a new loan deal, the Fund said, after the government pledged to halve its deficit in a 2013 draft budget.

The IMF froze a 1 billion euro ($1.30 billion) standby loan with Serbia in January over the country's rising deficit and public debt.

The public sector shortfall in 2012 has soared to around 7 percent of gross domestic product and public debt to 60 percent.

"This mission will likely start, but not conclude, negotiations on a potential Fund arrangement," IMF resident representative Bogdan Lissovolik said in a statement posted on the Fund's Serbia website.

"If sufficient agreement is reached, program discussions will continue in a follow-up mission."

The government on Thursday adopted a draft budget for 2013 that targets a deficit of 3.6 percent, saying it expects growth of 2 percent next year to underpin the consolidation.

The central bank says the economy will likely contract 1.5 percent this year, with unemployment currently at 25 percent.

Relations between the IMF and Serbia have frayed since the government, shortly after taking power in late July, moved to step up control of the central bank and appointed a lawmaker from the ruling coalition as governor.

The IMF statement did not refer specifically to the bank row, saying that the mission would arrive in mid-November at the request of the authorities "to discuss recent economic and fiscal developments and in particular the draft 2013 budget law."

In its quarterly report, released on Friday, the European Bank for Reconstruction and Development said it expected the Serbian economy to grow 1.1 percent in 2013, but said the government faced a "major challenge" in cutting the deficit and debt.

"Major risks remain," it added, "mainly from exposure to the euro zone, and, after declining to record lows, inflation is on the rise again and reached double-digit levels in September."

Annual inflation reached 10.3 percent in September, driven by soaring food prices on the back of a poor harvest and long drought.

The central bank sees inflation rising further to 12 percent this year and even higher until the first half of 2013, when it should start sliding back to its target band for this year and next of 4.5 percent, give or take 1.5 percentage points.