FC: Government Borrowing Justified in Principle, One-off Payment of EUR 100 to Citizens Should be Abandoned

Source: Beta Thursday, 09.04.2020. 10:07
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The Fiscal Council says that the planned government borrowing, amounting to more than EUR 3 billion, aiming to reduce the negative economic consequences of the coronavirus pandemic, is justified in principle, under the condition that the measures are economically rational, that the financing is secured on time and that they are carried out without delay, but they add that the Government of Serbia should abandon the plan to make a one-off payment of EUR 100 to each citizen of legal age.

– Although, in principle, the Fiscal Council supports a strong state intervention, which is necessary and justified in this moment, our analysis shows that the success of the planned program primarily depends on the following three factors: that all the measures in the program are economically rational, that their financing is secured on time and that their execution is efficient and timely, that is, that they are carried out without delay – the press release says.

According to the Fiscal Council, “most of the planned measures are justified and in line with good international practices, except for the one-off payment of EUR 100 to each citizen of legal age, which is entirely inappropriate.”

The measures directed at the economy and the employees in the private sector pertain to a postponement of tax payment, budget help for payment of salaries and increase of liquidity, and will cost the budget around EUR 2.5 billion. The Fiscal Council gives a positive rating to these measures.

– The cost of not carrying out such measures would be far greater than EUR 2.5 billion. However, the announced payment of EUR 100 to all citizens of legal age, which would cost the budget nearly EUR 600 million (which the budget doesn't have) – is bad for multiple reasons – the Fiscal Council announced.

As they explain, “this measure is not economically efficient, as it can't have any impact on a relevant and sustainable acceleration of the local economy, it is socially unfocused, as most of the funds are not directed at the objectively vulnerable citizens, who need financial help (which is the only thing that would make sense at the moment) and it is fiscally irresponsible, as it entails large additional borrowing in the year in which both the fiscal deficit and the public debt will record a strong growth.”


– It is unclear what the reasoning behind the policy is that practically means that the state will give EUR 100 to each citizen by first making them incur debt on those EUR 100, but with interest – the Fiscal Council said and invited the Government of Serbia to abandon this measure.

In its assessment of the program of economic measures, the Fiscal Council reminds that Serbia, as nearly all countries affected by the epidemic, has decided to react to the economic crisis through a strong government intervention, intending to help as big a part of the private sector as possible to survive, that is, not to have the current drop in business activities lead to permanent and excessive layoffs and a great damage to the citizens, the economy and, consequently, to the public finances.

The Fiscal Council, however, points out that the planned measures will cost taxpayers more than EUR 3 billion, which the state currently has no funds for, which is why Serbia will have to borrow a lot in the short term, “and that debt will be repaid with interest by all citizens in the years after the crisis.”
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