LEAD: IMF blocks credit to Serbia over excessive spending

Feb 9, 2012, 16:22 GMT

Belgrade - The International Monetary Fund (IMF) on Thursday suspended the release of the first tranche of a 1.1-billion-dollar credit line to Serbia, saying Belgrade had failed to keep spending within the agreed limits.

An IMF delegation left Belgrade without a deal after the government of Prime Minister Mirko Cvetkovic refused to budge.

The government has made provisions in the 2012 budget for banking guarantees for loans to state-owned enterprises. This has led to the country's budget deficit growing beyond 4.25 per cent of gross domestic product, which is the limit imposed by IMF.

Serbia insists that the guarantees are not actually expenditures, while the IMF argues otherwise.

The disagreement has blocked the first tranche, worth 190 million euros (252 million dollars) of the 1.1-billion-dollar facility agreed to in September.

An IMF team will return for a new evaluation of Serbia's compliance with the terms of the arrangement in mid-2012, a statement issued by Cvetkovic's cabinet said, stressing that the status of the arrangement remained unchanged.

Its spending largely unchecked, Serbia has been hard-hit by the economic crisis. However, the ruling coalition supporting President Boris Tadic has been reluctant to embark on unpopular reforms ahead of elections expected to take place in early May.

Meanwhile, Serbia's central bank on Thursday sharply revised downward its economic growth projection.

The central bank now expects the economy to grow at a rate of 0.5 per cent, instead of the 1.5 per cent that the budget has been based on.

Serbia has in the past borrowed to maintain monetary stability. But the cost of borrowing has become prohibitively high because of the widening crisis and could increase further with the suspension of the IMF arrangement.

A credit from the IMF not only means accessible funds at a favourable rate, but is also an important signal of economic prudence to investors and creditors, because it is conditioned with measures aimed at self-sustainable economic stability.

Serbia now needs a growing amount of foreign currency, to service its ballooning debt as well as for emergency imports of fuel and energy amid the European cold snap, which puts more pressure on the domestic currency.

The dinar on Thursday dropped to its all-time low of 108 to the euro. The dinar has lost roughly one-10th of its worth in the past year and one-third since 2008.

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