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Monday October 7, 2013 MYT 11:00:02 PM
Monday October 7, 2013 MYT 11:01:00 PM
by aleksandar vasovic AND ivana sekularac
BELGRADE (Reuters) - Serbia's government delayed detailing painful spending cuts for a day while the country's prime minister visited Brussels on Monday to tackle a problem over Kosovo that could delay talks on eventual EU entry.
Last week, powerful Deputy Prime Minister Aleksandar Vucic, who heads the Serbian Progressive Party, the senior partner in the coalition government, had said spending cuts would be announced on Monday.
The government instead announced it will hold a session open to the public on Tuesday, a rare move that tends to be used as a demonstration of unity. It was not clear whether ministers would take questions.
Dacic travelled to Brussels to meet the European Union's foreign policy chief Catherine Ashton and Kosovo officials to solve a deadlock which developed last week after authorities in the former Serbian province denied him permission to visit.
Serbia has also been eyeing a deal with the International Monetary Fund early next year to reassure investors and cut borrowing costs.
To do that Belgrade needs to trim the budget deficit, seen at 4.7 percent of gross domestic product (GDP) in 2013, cut subsidies and slash the costs of its public sector and pension system which combined account for half the budget outgoings.
Earlier this year, the IMF said Serbia's budget shortfall this year could reach 8.3 percent of GDP if no measures were taken. Serbia last year lost a previous 1 billion euro (846.13 million pounds) deal with the lender over broken spending promises.
Although both Vucic and Finance Minister Lazar Krstic advocate reforms, they face resistance from junior coalition partners led by the leftist Socialist Party of the Prime Minister Ivica Dacic.
"We have to cut wages in the public sector and we will start with politicians first," Vucic told Prva TV on Sunday, adding that up to 500,000 public sector employees will face some form of economy measures.
He said Serbia was on the verge if bankruptcy and his government would do everything necessary to avert this.
Vucic's comment did not seem to unnerve investors and the dinar currency gained 0.27 percent according to Reuters data. Belgrade-based dealers said that was mainly on anticipation of the austerity plan.
The currency traded between 113.88 and 114.6 around 4 p.m. (1400 GMT), from 114.25-114.30 on Friday.
"This (Vucic's remarks) is all aimed at managing domestic political expectations as the government announces difficult but urgently needed fiscal consolidation measures," said Timothy Ash, head of emerging markets research at Standard Bank.
By next June Serbia will need around four billion euros to service debt seen at 65 percent of GDP by the end of 2013.
The country is considering whether to tap markets with a $1 billion Eurobond this year. It also sought financing from sovereign lenders including the United Arab Emirates, China and Russia.
"They (the government) don't have too much time to implement the spending cuts," said Vladimir Gligorov of the Vienna-based Institute for International Economic Studies. "They are very keen for a new loan deal with the IMF and a question is if there is an agreement (within the ruling coalition) about it."
(Editing by Ruth Pitchford)
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