Page last updated at 11:39 GMT, Monday, 14 September 2009 12:39 UK

Serbia 'cuts jobs for IMF loan'

Serbian flag
Serbia says it will not increase taxes to raise money

Serbia may have to cut one-fifth of the 70,000 employed in the public sector to satisfy the terms of an International Monetary Fund (IMF) loan.

Serbia's finance minister Diana Dragutinovic said it is planning more cuts before talks with the IMF resume next month.

The IMF postponed releasing the second tranche of its 3bn euros ($4.3bn; £2.6bn) loan as it awaits more reform.

With unemployment high in Serbia, unions are already threatening strikes.

The Serbian economy has been hit hard by the global downturn and is expected to contract by more than 5% this year.

Currently, the unemployment rate stands at 18%.

Loan terms

The 800m-euro instalment is dependent on the government making reforms to comply with IMF conditions set out when the original loan was agreed in March.

The IMF has suggested raising the value-added tax, which is already 18%, to reduce its budget deficit.

But Serbia wants to achieve this through staff cuts.

"The government will present its strategy to the IMF mission without VAT or tax increases... but with a strategic plan of downsizing public costs through a decrease of the public administration," said Serbian environment minister Oliver Dulic has said.

Currently, Serbia is running a deficit of 4.5% of gross domestic product.

Serbia has proposed 4%, while Ms Dragutinovic said the IMF wants it to be about 3.5%.

"I expect from the ministries to give their proposals by 18 September for rationalising and reducing public spending," Ms Dragutinovic said.

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