Serbia’s economy to shrink by at up to 5 percent, financial minister says

Serbia’s economy to shrink beyond IMF estimates

BELGRADE, Serbia — Serbia’s recession-hit economy will shrink by up to 5 percent this year, far exceeding estimates by the International Monetary Fund, the country’s finance minister said Wednesday.

Diana Dragutinovic said the government estimates output will fall between 3.5 and 5 percent this year. When it granted a euro3-billion ($4.2 billion) loan in March, the IMF had estimated that Serbia’s economic growth would contract by 2 percent in 2009.

The figures released by Dragutinovic indicate the country might need to ask the IMF for more money or resort to more austerity measures such as an increase in value-added tax — currently 18 percent — on all goods.

That would be highly unpopular and could worsen inflation, currently around 8 percent annually.

An IMF delegation is expected in Belgrade in August to discuss whether Serbia will be allowed to withdraw more funds from the international financial organization. Serbia has already withdrawn euro788 million from the original IMF emergency loan.

Serbia got the credits after the government adopted austerity measures to save about euro1 billion this year and curtail a burgeoning budget deficit. The measures include letting go one in 10 government employees, freezes on hiring and salary and additional taxes on state wages, gasoline, mobile phone use and luxury goods.

Serbian officials had said the IMF’s financial support would help the country negotiate additional loans from the World Bank, the European Union and other foreign creditors.