Report on Work of the Ministry of Finance

in the First 100 Days of the Government

Belgrade, September 5, 2007

MinisterMirko Cvetkovic, PhD

MinisterMirko Cvetkovic, PhD

State SecretaryJanko Guzijan, MSci

State SecretaryJanko Guzijan, MSci

State SecretarySlobodan Ilic, PhDState Secretary

Slobodan Ilic, PhD

State SecretaryMiodrag Djidic

State SecretaryMiodrag Djidic

BudgetBudget

Macroeconomic and Fiscal Analyses

Macroeconomic and Fiscal Analyses

Fiscal SystemFiscal System

Customs System and PolicyCustoms System and Policy

Financial SystemFinancial System

International Financial Relations

International Financial Relations

Property and Legal AffairsProperty and Legal Affairs

DonationsDonations

Public ProcurementPublic Procurement

Tax AdministrationTax Administration

Customs Administration Customs Administration

Tobacco AdministrationTobacco Administration

Anti-Money Laundering Administration

Anti-Money Laundering Administration

Games of Chance Administration

Games of Chance Administration

Economy and Public EnterprisesEconomy and Public Enterprises

Budget InspectionBudget Inspection

Treasury AdministrationTreasury Administration

Foreign Exchange InspectorateForeign Exchange Inspectorate

Public Debt AdministrationPublic Debt Administration

Free Economic Zones Administration

Free Economic Zones Administration

Appeals ofMisdemeanor Proceedings

Appeals ofMisdemeanor Proceedings

Fiscal policy resultsFiscal policy results

• 2007 Budget and related package of tax laws adopted• Macroeconomic indicators• Memorandum on Budget and Economic and Fiscal

Policy for 2008, with projections for 2009 and 2010, adopted

• Preparation of 2008 Budget, new laws and bylaws, and improvement of the existing ones underway

2007 Budget and tax laws2007 Budget and tax laws• More money from the budget apportioned for employment, boosting

investments, production and export• With adoption of the Budget Law, more resources allocated to AP Vojvodina• National Investment Plan included in current budget expenditure• All contracted liabilities which the government assumed (protocols on

education and health care workers’ wages, contracted projects in NIP) fulfilled

• Persons buying their first apartments exempted from transfer tax and VAT• Transfer tax on real estate trade lowered from 5% to 2.5%• VAT rate on purchase of computers reduced from 18% to 8%• Excise and customs duties on cigarettes aligned with the CEFTA Agreement

•

Budget execution in January-AugustBudget execution in January-August 2007 2007

-10000

0

10000

20000

30000

40000

50000

60000

Јanuary Februa March April May June July August

mill

ion

s o

f d

inar

s

Republic budget inflow Republic budget expenditure Budget surplus/deficit

In millions of dinars

Budget inflow and expenses

January February March April May June July AugustJanuary-August

I OVERALL INFLOW

69.381,3 32.688,6 49.637,7 48.289,2 43.756,5 41.012,2 51.052,2 42.505,1 378.322,8

1. Tax revenues41.508,7 30.398,2 44.829,0 44.383,1 40.798,0 38.489,7 48.370,9 39.905,5 328.683,1

2. Non-tax revenues

27.872,6 2.290,5 4.808,7 3.906,1 2.958,5 2.522,5 2.681,3 2.599,6 49.639,7

II OVERALL EXPENDITURE

38.900,9 38.967,1 46.229,5 42.279,2 36.561,3 40.295,2 44.710,2 47.305,6 335.249,0

1. Current expenditure

36.855,2 36.463,4 41.153,6 37.452,2 34.720,7 38.104,7 42.611,5 43.504,2 310.865,4

2. Capital expenditure

2.045,7 2.503,7 5.075,9 4.826,9 1.840,6 2.190,5 2.098,7 3.801,4 24.383,6

III Budget surplus/deficit (I - II)

30.480,3 -6.278,5 3.408,2 6.010,0 7.195,2 717,0 6.342,0 -4.800,5 43.073,8

Budget inflow and expenditure in January-August 2007Budget inflow and expenditure in January-August 2007

Macroeconomic implications of fiscal Macroeconomic implications of fiscal policypolicy

• Fiscal policy for the past several months of the year had a slightly restrictive influence on domestic demand

• Result of this policy was low core inflation, whose monthly average to date was 0.3% (around 3.7% on the annual level)

• Share of expenditure for public investments increased, as well as for education and health

• Future changes in public investments, including NIP, toward strategic projects were initiated (Corridor X)

Gross Domestic ProductGross Domestic Product, , annual growth ratesannual growth rates

4.6

7.87.4

5.0

6.2

7.0

5.9

5.35.0

5.7

8.2

7.1 7.0

0

1

2

3

4

5

6

7

8

9

Q1 Q2 Q3 Q4 2005 Q1 Q2 Q3 Q4 2006 Q1 Q2 2007*

2005 2006 2007

in %

* projection

Retail prices trendRetail prices trend, , annual growthannual growth

0.0

2.0

4.06.0

8.0

10.0

12.0

14.016.0

18.0

20.0

Janu

ary

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ruar

y

Mar

ch

Apr

il

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ust

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r

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Apr

il

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ust

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il

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ust

2005 2006 2007

Foreign tradeForeign trade

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500

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2000

Janu

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ruar

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ch

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il

May

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July

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ust

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r

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2005 2006 2007

IN M

IL E

UR

Export Import Deficit

Share of Republic of Serbia’s public debt in GDP Share of Republic of Serbia’s public debt in GDP from 2000 till July 31, 2007from 2000 till July 31, 2007

30.234.950.253.3

64.369.5

102.2

169.3

0

50

100

150

200

in %

Memorandum on the Budget for 2008Memorandum on the Budget for 2008 • Basic priority of fiscal policy is to secure macroeconomic stability by

reducing public expenditure• Planned reduction of share of public expenditure in GDP for 2008 by

1.7 percentage points • Key measures are:

– limiting wage bill for budget users– reducing public investments from the Republic budget by 20%– reducing expenditure for goods and services from the Republic

budget by 10% – reducing subsidies by 5%

• Continued structural reforms in the area of public finances planned: further tax reforms (changes of laws), improving structure of government spending, promoting the Ministry’s work

Next steps

• 2008 Budget :- preliminary estimates around RSD630bn- aspiring toward a balanced budget

• Talks with all unions concerning wage bill for 2008• Privatization of DDOR by the end of the year• EUR100m recapitalization of Komercijalna banka • CUSTOMS ADMINISTRATION – modernization of

border crossings• TAX ADMINISTRATION – strengthened control of

taxpayers• Restitution Law and property reform

Laws and bylaws underwayLaws and bylaws underway• New laws:

Restitution Law

Public Procurement Law

State Aid Law

Law on Public Property/ Property of Local Self-Governments

Law on Mandatory Insurance in Transportation

Law on Prevention of Money-Laundering and Financing of Terrorism

• Changes and amendments to existing laws:

Law on amendments and changes to Law on Market in Securities

Law on amendments and changes to Insurance Law

Law on amendments and changes to Customs Law

Law on amendments and changes to Corporate Profit Tax Law