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Serbian economy will be in serious trouble if public debt levels continue to grow and exceed 55 per cent of GDP by the end of 2012, body warns.
As Serbia prepares to form a new government, the Fiscal Council, an independent body monitoring public finances in Serbia, says the country faces a debt crisis if the national debt level exceeds 55 per cent of GDP by the end of the year.
The Council has drawn up a paper, "Measures for fiscal consolidation from 2012 -2016”, containing emergency measures to avoid a crisis.
Mid-term measures include reforms of the tax and pension systems and public companies while short-term measures include freezing salaries and pensions, raising VAT to 22 per cent, and further spending cuts.
According to the council, the budget deficit is also rising and will exceed 6 per cent of GDP by the end of 2012.
Serbia needs to borrow another 2.5 billion euro by the end of the year to finance its budget deficit and pay the principal on old loans, the council noted.
Serbia's weak public finances are the main reason for the continuing slide of the dinar against the euro, the council said.
In this situation, the National Bank of Serbia has been intervening in foreign exchange markets and urging speedier fiscal consolidation.
The deadline for formation of a new government is September 5.
To keep its reform policy credible for investors, the government must find common ground with the IMF and look for a new arrangement, experts say.