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IMF visit pushed back to May. The IMF was scheduled to visit Serbia this month to discuss the possibility of a loan deal. Finance Minister Dinkic announced that the IMF will instead be visiting the country in May and a deal is expected in June/July. As such we now expect the completion of an IMF deal to occur by end H1/early H2 2013 (from our earlier expectation that it would take place by end Q1/early Q2. Importantly, local media reports suggest that the request for delaying the visit came from the IMF so that the organisation could have more time assessing developments on the impact of tax changes in Q1, but also so that the organisation can kill two birds with one stone: carry out its article iv consultations on the Serbian economy, as well as carrying out loan negotiations. It is important to note that the delay of the visit was not forced by the Serbian government and was instead "jointly agreed" according to the Finance Minister. Such a development would have exacerbated concerns that Serbia might "do a Hungary" vis--vis the IMF. In particular, it would have led to concerns that Serbia would tap the international markets before May having kept the possibility of a deal alive, only to pull the plug on later on. The fact that the delay of the visit was not forced by the government should allay such fears.
IMF deal will still go ahead Serbia has too much to lose without it. We are not in the "Serbia will do a Hungary" camp when it comes to the possibility of an IMF deal. The Serbian government remains committed to a deal, in our view, in large part due to two factors:
i) Serbia's macroeconomic imbalances are too great for it to go it alone. With a current account and budget deficit of >10% and >6.5% of GDP, respectively, Serbia's twin deficits were unrivalled in 2012 and are likely to remain the worst in 2013, as well. The government has been able to finance itself, in large part, thanks to favourable market conditions. A moderate correction of market sentiment would force investors to reassess their position regarding Serbia, especially in the absence of an IMF deal. The presence of the IMF will serve to provide an anchor for fiscal policy and will contain investor concerns. Without it, Serbian assets have a long way to fall and financing in international markets will become particularly difficult for the government. In our view, the politicians know this and as such, will want to have the IMF deal in place.
ii) Finance Ministry will use IMF deal to deflect political criticism on fiscal consolidation efforts. The Finance Ministry, under Mladjan Dinkic, is highly committed to fiscal consolidation in our view, even though the 2013 budget has been disappointing on the expenditure-side adjustments, in our view. Still, the revenue-side measures taken are considerable and should help to bring down the budget deficit towards 4.5-5% of GDP (much higher than the government's 3.5% target). Dinkic would want to have an IMF deal in place so that it could deflect any political criticism that are likely to come his way on the ongoing fiscal consolidation effort, be it from the opposition or other members of the coalition.
Delay headline will sap Serbian assets' performance over next few weeks. With the IMF visit pushed back to May, there are few positive headline risks in the pipeline in the very short term. Further issuance by Serbia, most likely over the next few weeks will add pressure to Serbia's credit performance and the government's access to increased financing will exacerbate questions about Serbia's commitment to a deal with the IMF. We would be inclined to fade those concerns once they have become embedded in the credit's story.
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Povezane vesti na srpskom
Συναφείς Ειδήσεις στα Ελληνικά