Fitch: Serbia Election Outcome Can Support Further Reform
OREANDA-NEWS. The victory of Prime Minster Aleksandar Vucic's Progressive Party in Serbia's election enables the government to continue with its proposed reform and fiscal consolidation agenda, Fitch Ratings says. This continuity was one of our assumptions when we revised the Outlook on Serbia's 'B+' sovereign rating to Positive from Stable in December.
The Electoral Commission said on Monday that the Progressive Party had received 48.3% of the vote, with 97% of votes counted. The Progressives took 131 seats, down from 158 as smaller parties increased their representation but enough to secure a parliamentary majority. Vucic had said before polling that he would form another coalition even if the poll delivered a majority, but had not specified with which party. The Progressives' most recent coalition partner, the Socialist Party, received the second-largest share of the vote, with 11%, or 29 seats.
Vucic called the early elections to affirm his mandate to enact reforms in line with Serbia's USD1.2bn, three-year precautionary IMF Stand-By Arrangement agreed in February 2015, and with continuing EU accession talks. Securing a parliamentary majority should therefore support those reform efforts that have so far proved more difficult or unpopular.
For example, moves to reduce the public sector wage bill by cutting the workforce have been delayed, and the Ministry of Finance has indicated that 30,000 jobs will be cut this year. A significant hurdle for the IMF programme is the resolution of some strategically important public enterprises that have been protected from bankruptcy procedures. Broader reforms to improve the profitability of the State Electricity Company are planned following the increase in electricity tariffs.
Reform of the public sector and SOEs, and privatising viable entities, are key performance benchmarks under the IMF agreement. Failure to enact reform would add to fiscal risks and could undermine debt sustainability. Large fiscal deficits have pushed public debt steadily higher, to above 75% of GDP in 2015, compared with a 'B' category median of 52.7%.
Falling current expenditure alongside strong revenue performance as the economy has returned to growth, and boosted by one-off items, led to the fiscal deficit falling to 3.7% of GDP last year from an average of 5.7% in 2010-2014. This was below the 4.1% projected last November.
Our December Outlook revision reflected the recovery from the 2014 recession, fiscal consolidation, and improving external balances. Progress in these areas - such as successful implementation of a medium-term fiscal programme that reduces public debt/GDP, or a further drop in the persistently high current account deficit - would be ratings positive.