In Austerity Drive, Serbia to Cut Public Wages

A top Serbian official warned of the country's dire economic straits and signaled that the government was preparing to cut the wages of public workers, as the cabinet prepared to pass new austerity measures on Tuesday, The Wall Street Journal reported. Deputy Prime Minister Aleksandar Vucic said the government will cut public worker salaries by 10% or more as the government struggles to avoid insolvency and a ratings downgrade of its bonds. Serbia is suffering staggering unemployment, with a quarter of the working-age population out of work. "The state is almost bankrupt, but we will do our best in order to prevent" insolvency, Mr. Vucic said in remarks on Serbian TV, confirmed by a spokeswoman on Monday. "Measures for economic recovery will be difficult, not populist, and will affect between 300,000 and 500,000 people" in the country of 7.2 million. Standard & Poor's Ratings Services, Moody's Investors Service and Fitch Ratings, which all rate Serbia's bonds as noninvestment grade and two of them with a negative outlook, didn't respond to requests for comment. The government in Belgrade is next year expected to begin talks to join the European Union, a goal likely take years to achieve. If Serbia were a member now, it would be the bloc's poorest state by per capita income. Investor reaction to Mr. Vucic's comments was muted, with bond yields rising slightly. "We argue that the government is in fact not on the verge of bankruptcy, given considerable fiscal reserves," wrote Royal Bank of Scotland emerging markets analyst Abbas Ameli-Renani. "We suspect that the deputy PM's comments were targeted toward the domestic audience amid what appears set to be the imposition of nominal wage cuts on public sector employees as part of the 2014 economic measures." Read more. (Subscription required.)