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Serbia to make budget cuts to avoid bankruptcy

October 8, 2013

BELGRADE, Serbia (AP) — Serbia’s government on Tuesday announced a series of austerity measures that will cut public sector wages and hike value-added taxes to reduce public debt and avoid bankruptcy.

Finance Minister Lazar Krstic said the reform of Serbia’s economy is running at least 10 years late. He said that without the measures, the state would go bust in up to two years.

Serbia is struggling with unemployment of 25 percent. The government has foreign debt of 19 billion euros ($26 billion) and a budget deficit of 6.5 percent of annual gross domestic product.

Krstic said the government will introduce in 2014 “solidarity taxes” ranging from 10 percent to 25 percent on salaries in the public sector that are above 60,000 dinars (520 euros, $712) a month. The measure will affect up to 350,000 state employees in the country of 7.3 million.

Other measures included in the plan are the increase of VAT on food and staples from 8 percent to 10 percent; the increase of the retirement age for women from 60 to 63 years; a reduction of state subsidies for loss-making companies; a cut to government travel and other expenses and the clampdown on tax evasion and avoidance.

Krstic, a 29-year-old Yale graduate who became Serbia’s finance minister last month, said that the aim of the measures is to save 1.5 billion euros and cut the budget deficit to 2 percent of GDP by 2017.

Prime Minister Ivica Dacic said that without the austerity measures the Balkan country would in two years face financial “chaos” similar to what befell Greece, which needed rescue loans to avoid default and has been in recession since 2008.

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