Download Ребаланс буџета и фискална политика у 2008. години

2008 Budget Revision and Fiscal
Policy Guidelines for 2009
Minister
Dr Diana Dragutinovic
1
Assessment of latest
macroeconomic trends
• Fast economic growth:
– Average growth rate over the past three years was 6.5%,
expected growth this year is around 7%
– The growth is relatively widely diversified (a large number of
branches has average and above average growth)
– Export grows at around 25% rate and is also highly diversified
• But with large imbalances:
– current account deficit last year was 14.7% of GDP; it will reach some
18.4% this year
– external debt is around 60 % of GDP,
– y-o-y inflation at the moment is 9.5%, it will probably be slightly lower
• This growth model is unsustainable in the long!
2
Macroeconomic outlook for 2009
• Positive tendencies in Serbian economy
are expected to continue:
– 6.5% GDP growth
– inflation rate declining to 6%-7%
– cutting unemployment rate by 0.8 percentage
points of GDP
– cutting current account deficit by 0.6
percentage points of GDP
3
Assumptions for realization of
macroeconomic objectives
– Accelerating reforms toward building a complete
market economy
– Continued European integrations
– A counter-cyclical combination of monetary and
fiscal policy that would lead to:
• cutting the inflation to 4% in 2012
• reducing current account deficit
– Raising investments rate to 25-27% annually
(EUR8-10 billion annually)
• creating a favorable climate for private investments
• building a modern transport, energy and telecommunications
infrastructure
4
Macroeconomic projections
Execution
Estimate
2007
2008
2009
2010
2011
2,320.8
2,773.8
3,169.7
3,564.8
4,012.2
3,941
4,709
5,295
5,912
6,631
7.1
7
6.5
6.5
7,5
Personal consumption
12.2
11.1
6.9
4.5
3.7
Government consumption
11.7
6.9
-0.6
0.7
2.6
Gross fixed capital formation
19.4
12.3
17.2
17.6
18.1
Exports of goods and services
17.2
16.3
19.8
20.2
20.8
Imports of goods and services
24.5
17.7
14.6
13.6
13.4
-23
-23.9
-23.6
-22.8
-21.2
-14.8
-18.4
-17.8
-17.1
-15.4
External debt, % of GDP
61.3
60.1
62.7
64
63,8
Inflation, end of period, %
10.1
9.5
6
5
4
Unemployment rate (ILO definition)
18.8
18.6
17.8
16.7
15.7
2,002
2,004
2,016
2,040
2,071
GDP, dinars, in millions (current prices)
GDP per capita, euros
GDP, annual real growth rates, %
PROJECTION
Real growth of specific GDP components, %
Foreign trade balance, euros, % of GDP
Current account balance, euros, % of GDP
Number of persons employed, annual average
5
Major macroeconomic risks
• Continued expansion of domestic demand,
realized through:
– rising current expenditure
•
•
•
•
pension increase
subsidies etc. increase
rising wages
rising credit activity
– planned high investment growth
• Continued global market crisis
6
Potential effects of the global
financial crisis on Serbia
• Dynamic economic growth, with relative macroeconomic stability, is
sustained due to foreign capital inflow in the form of loans and
foreign investments amounting to at least 18% of GDP (EUR 6-7
billion)
• A considerable and lasting drop in capital inflow would cause a crisis
on the forex market and in the balance of payments
• Forex market destabilization may accelerate inflation
• A considerably lower inflow of foreign loans and direct investments
would result in declining investments and decelerated economic
growth of Serbia
• Unfavorable situation on the global financial market would
complicate financing of the fiscal deficit and realization of
infrastructure projects in Serbia
7
The role of fiscal policy in realization of
macroeconomic objectives and risk
minimization
• Fiscal policy should:
• Contribute to lowering of the aggregate demand, which is
vital for reducing inflation and foreign deficit and maintaining
foreign and public deficit within sustainable framework
• Contain the current expenditure, which is of vital importance:
wages, pensions, subsidies, soft budget loans etc.
• Use public investments and tax and other incentives to
contribute to increase of economic activity, higher
employment and reduction of regional differences
• Use regulatory reform to create a more favorable climate for
growth of private investments and employment
8
METHODOLOGICAL NOTES
• To measure overall fiscal results, we will use the
standard methodology (comprehensible worldwide)
that enables comparisons with other countries
• However, it is wise to be conservative and not creative
when applying the standard methodology on a nonstandard case
• The previous methodology on average:
– overestimated regular revenue (mobile telephony license);
– underestimated regular expense (soft loans, debt to
pensioners, etc.);
– made the total fiscal result better!
9
Assessment of Serbia’s fiscal
performances
• Fiscal burden and government expenditure in Serbia are high
– revenue at 42.7% of GDP, expenditure at 45.4% of GDP
• Government expenditure and revenue to GDP ratio in Serbia are:
– slightly above the level of Central European countries, whose level of
development is two times higher than Serbia’s
– considerably higher than in countries that are at the same level of
development as Serbia (Bulgaria, Romania...)
• Fiscal deficit in Serbia:
– spans between 1.5 and 2.7% of GDP,
– which is far above the average of countries in transitions
– and meets the Maastricht requirement
• ... but is inadequate for Serbian economy:
– because of the high domestic private demand
– because of the need for large investments, though domestic saving is
low
10
F is c al burden in S erbia and E U member s tates
(T otal revenue, % of G DP , in 2007)
S weden
Denmark
F inland
F rance
B elgium
Aus tria
C yprus
Italy
Netherlands
E U 27
Hungary
G ermany
S lovenia
P ortugal
S erbia
B ulgaria
S pain
UK
C z ech R epublic
Malta
Luxembourg
P oland
G reece
Latvia
E s tonia
Ireland
S lovakia
R omania
Lithuania
56.0
55.1
34.7
34.4
34.3
38.0
36.9
36.7
49.9
48.7
47.5
47.2
46.6
46.3
44.9
44.6
43.9
43.2
43.1
42.1
41.2
41.0
40.9
40.8
40.7
40.5
40.4
40.2
52.7
11
G overnment expenditure in S erbia and E U member s tates , % of G DP , in 2007
S weden
F rance
Denmark
Hungary
B elgium
Italy
Aus tria
F inland
Netherlands
E U 27
P ortugal
S erbia
C yprus
Germany
UK
S lovenia
Greece
Malta
C z ech R epublic
P oland
S pain
Latvia
B ulgaria
Luxembourg
S lovakia
R omania
Ireland
Lithuania
E s tonia
52.6
52.6
50.6
50.1
48.9
48.5
48.2
47.5
45.9
45.8
45.8
44.0
43.9
43.9
43.7
43.3
43.3
42.5
42.4
42.4
38.8
38.0
37.8
37.5
36.9
36.9
36.4
35.6
33.7
12
Reasons for 2008 Budget Revision
• New priorities of the new government:
–
–
–
–
accelerated building of infrastructure
financial incentives for strategic investments,
improving situation of pensioners,
financial assistance to talented persons etc.
• Part of the priorities has already been formalized through regulations
and agreements:
–
–
–
–
Decree on Extraordinary Pension Increase
Agreement with FIAT
Agreements with infrastructure contractors
Decree on Talented Persons
• Aligning the budget with macroeconomic developments
13
2008 Budget Revision
2008 Budget Law
Law on Changes and
Ammendments to 2008
Budget Law
Increase /
Decrease
A Total revenue (I+II+III)
639,600.3
650,174.3
10,574.1
I Current revenue (1.+2.)
639,600.3
650,174.3
10,574.1
1.Tax revenue (1.1+…+1.6)
596,179.1
606,464.9
10,285.8
1.1. Customs duties
61,584.7
70,447.7
8,863.0
1.2. Income tax
72,000.0
76,046.6
4,046.6
1.3. Profit tax
34,024.4
36,087.1
2,062.7
1.4. VAT
311,493.5
315,642.2
4,148.8
1.5. Excises
111,274.7
102,314.9
-8,959.7
1.6. Other taxes
5,801.9
5,926.4
124.5
43,421.1
43,709.4
288.3
B Total expense and net borrowing ( I+II+III)
680,548.8
695,959.1
15,410.3
I
588,551.3
614,854.5
26,303.2
149,374.5
150,362.4
987.9
1.2 Social contributions (412)
27,448.9
27,251.6
-197.3
1.3 Procurement of goods and services
45,714.8
45,900.3
185.4
1.4. Interest
16,957.0
16,437.2
-519.8
1.5 Subsidies
39,571.9
48,469.4
8,897.5
2. Nontax revenue
Current expense (1.1-1.8)
1.1 Wages and salaries
1.6 Social assistance benefits
1.7 Transfers to other governmental levels and
MSSO
66,703.2
68,119.3
1,416.1
232,762.8
247,089.1
14,326.3
1.8 Other current expense
10,018.3
11,225.2
1,206.9
II
65,877.8
59,058.1
-6,819.7
26,119.6
22,046.4
-4,073.2
-40,948.5
-45,784.7
-4,836.3
III
Capital expense
Net borrowing
IV Surplus / Deficit (А - B)
14
Financing of the Republic of Serbia
budget deficit and debt repayment
in 2008
dinars, in millions
2008 Budget
Law
Law on Changes
and
Ammendments
to 2008 Budget
Law
1. Needed funds
-89,306.2
-92,118.8
1.1. Budget deficit
-40,948.5
-45,784.7
1.2. Repayment of principal
-48,357.8
-46,334.1
2. Financing
89,306.2
92,118.8
2.1. Reducing the deposit
30,000.0
30,000.0
2.2. Current receipts from privatization and bankruptcies
35,000.0
35,000.0
2.3. New borrowing
24,306.2
27,118.8
15
• The political agreements left little room for
managing a sustainable fiscal policy
• However, proposed Revision is a
reasonable compromise in the given
political circumstances (reasonable,
because fiscal rules have been observed!)
16
Macroeconomic consequences of
the budget revision
• Revenue/GDP ratio increased by 0.4%,
expense/GDP ratio rose by 0.6%, while
deficit/GDP ratio grew by 0.2%
• The Revision has not increased considerably the
expansiveness of the fiscal policy, but it was
realized in an atmosphere of high demand and
overheated economy
• It is necessary to take the turn toward cutting the
share of government expenditure and fiscal
deficit in GDP as of 2009 already
17
Macroeconomic frameworks for a
sustainable fiscal policy in 2009
• Cutting consolidated government expenditure
from 45.4% of GDP in 2008 to 44.3% of GDP in
2009
• Reducing the fiscal deficit from 2.7% of GDP in
2008 to below 2% of GDP in 2009
• Considerable change in the structure of
government expenditure toward increasing the
share of public investments (Corridor 10 etc.)
• Enhancing government spending management
• Continued tax system reforms
18
Fiscal policy measures –
government revenue
• Objectives: to continue tax reforms and tackle
tax evasion
• Aggregate result of changes to tax legislation
every year should be revenue-neutral or positive
• Tackling the grey economy
– Nonselective combating of classic forms of evasion
(smuggling, black labor market),
– Streamlining regulations in order to tackle “new”
forms of fraud,
– Enhancing the coordination between the Ministry of
Finance, Ministry of Internal Affairs and the
Prosecutor’s Office in exposing and sanctioning fraud
19
Fiscal policy measures –
government expenditure
•
Real wage bill growth around 2% in 2009
•
Cutting the expenditure on goods and services from 7.2% of GDP in 2008 to 6.7% in
2009
•
Cutting the share of subsidies in GDP from 2.8% in 2008 to 2.6% in 2009
•
Reducing budget borrowing and recapitalization from 0.9% of GDP in 2008 to 0.7% in
2010
•
Redirecting savings made on subsidies, lending and recapitalization to public
investments, primarily to Corridor 10.
•
Directing at least 50% of the NIP towards financing of Corridor 10
20
Conclusions
•
Continued fast economic growth calls for reducing internal and external
imbalances to a sustainable level, meaning:
– gradual reduction of government expenditure relative to GDP,
– moving from a fiscal deficit into a fiscal surplus,
– restrictive monetary policy...
•
It is macroeconomically unsustainable to increase synchronously
expenditure for:
–
–
–
–
–
–
–
–
•
pensions,
investments into infrastructure,
incentives for strategic investments,
start-up loans,
farm subsidies,
population policy,
science,
environmental protection etc.
Therefore, we need to establish priorities within a macroeconomically
sustainable fiscal policy
21
Conclusions
• In the area of fiscal policy, it is vital to define priorities on the
expenditure side
• Establishment of priorities entails that:
–
–
–
–
some projects are realized entirely,
while others are realized only partly,
realization of some projects is postponed for a particular period of time,
some projects are abandoned.
• The criteria for project selection should be their potential contribution
to economic and social objectives defined in the Memorandum, the
Prime Minister’s exposé and coalition agreements
• The result of projects/plans selection should be a lower share of
government expenditure and fiscal deficit relative to GDP
22
Conclusions
• Any attempt to realize all election campaign promises
and all demands of budget beneficiaries and interest
groups would result in a higher fiscal deficit.
• It is very unlikely that the deficit could be financed because:
– expected privatization receipts are modest,
– domestic financial market is underdeveloped,
– the end to the global financial crisis is nowhere in sight,
– Serbia’s credit rating is low and would be even lower with such a
policy.
• Due to inability to provide funds to finance the deficit,
there would be delays in settling the liabilities.
23
Conclusions
• For a successful realization of the Government’s
economic objectives, all coalition members need to
assume responsibility for the government’s overall
results, and not only for results in “their” line ministries.
• Teamwork would entail relinquishing the previous
practice of various ministries autonomously undertaking
obligations, without consulting the Ministry of Finance
and the government.
• It is necessary that all ministries introduce rigorous
savings measures and to make a rationalization plan of
revenues within their jurisdiction.
• Major tax rates cannot be reduced in the coming period
– Within the EU accession process, Serbia will lose around 1% of
GDP in customs duty revenues over the next 2-3 years.
24