Finance Minister Diana Dragutinovic stated on Sept. 1 that the fifth review of Serbia's current stand-by arrangement with the International Monetary Fund had reached a successful conclusion and that public-sector salaries and pensions would increase three times next year.

Speaking at a government news conference, Dragutinovic said that the original plan had been to raise salaries, frozen in late 2008, in April 2011. She added that the premature increase would cost the state around RSD4 billion.

She explained that public-sector employees and pensioners would in January 2011 get raises corresponding to inflation in the second half of 2010. This would be followed in April with hikes equal to first-quarter inflation and half of the country's real-term GDP growth. Finally, in October, another raise, equal to inflation in the previous six months, would follow.

"The planned state expenditure for 2010 will not increase because of the unfreezing of salaries and pensions, but funding will be reallocated," Dragutinovic stressed, announcing that changes to this year's budget would be prepared soon. The agreed deficit will not exceed 4.8 percent of GDP.

IMF Mission head Albert Jaeger said that the condition for the IMF Board of Directors to approve the fifth review of the arrangement with Serbia was for the government to send to Parliament a bill on fiscal responsibility as arranged with the IMF. This law will limit the 2011 budget deficit to four percent of GDP.

The Board of Directors it scheduled to meet on Sept. 27. Approval of the review would enable Serbia to withdraw the next EUR380 million installment of its IMF loan.

Jaeger stressed that late 2010 and all of 2011 would be difficult for Serbian citizens due to slowness in economic recovery and rising unemployment. He urged politicians not to make unrealistic promises about government spending.

Jaeger said that the IMF's projection of 1.5 percent GDP growth in Serbia in 2010 and three percent in 2011 remained in effect.