Financial Crisis Will Hit Serbia, UN Official

11 November 2008 Belgrade – The international financial crisis has already reached Serbia and the country must brace itself for the protracted consequences of a market slump, a top official with the United Nations Development Program said.

“The international financial crisis is reaching Serbia via two channels,” said Kori Udovicki, the director of the regional UNDP office in Belgrade.

Udovicki, the former governor of the National Bank of Serbia and former energy minister, told Belgrade’s daily Blic that “the first channel represents a great decrease in the inflow of foreign assets through loans or direct investments”.

“The other channel is a drop in spending abroad,” which will pose a problem for companies placing Serbian products overseas, she said. “A decrease in exports will in turn lower the possibilities of financing imports,” she added.

Her remarks came after the IMF team which is in Serbia to help local experts draft the 2009 budget, last week warned the government that it expects the country’s economic growth rate to decline to 3.5 per cent in 2009 from the current 7 per cent. It also said that it expects the budget deficit to reach 50 billion dinars (€588.8 million).

The delegation has also warned the Serbian government to abandon plans for a 70 per cent increase of pensions designed to adjust them to the average wage.

“Serbia must be prepared to decrease spending by 15 per cent … by cutting back on the parts (of the budget) that contribute directly to spending, and on loans in the banking system,” said Udovicki.

She said that the dinar must also continue to decline. The dinar has lost more than 10 per cent of its value in the past month. “The exchange rate should decline faster than inflation. That would ensure a decrease in demand from abroad and om the rise of the current account deficit, instead of ‘killing’ production,” Udovicki said.