(MENAFN - AFP) The Serbian government adopted Tuesday austerity measures, including slashing the pay of state employees by up to 25 percent, in a bid to balance the budget and stave off bankruptcy.
A six-measure package presented by Finance Minister Lazar Krstic at an open government session also included a VAT sales tax increase from 8 to 10 percent for basic goods, and slashing state subsidies and public sector spending.
"Without these measures, we will be bankrupt in the next two years," Krstic told the session.
Serbia's economy is mired in recession, having contracted by 1.7 percent last year, and unemployment stands at 24 percent.
The government has so far failed to take sharp action to control public finances, letting the budget deficit swell up to 4.7 percent of GDP this year, while public debt is higher than 60 percent of GDP.
"Our goal is to stabilise public debt by 2016-2017 and to put deficit at around 2 percent of GDP," Krstic said.
The government sees the VAT increase bringing in an additional 200 million euros per year (271.4 million), while increasing the average cost of living by 0.7 percent.
The wage cut for the around 660,000 people could save up to 150 million euros.
Last week, Serbian officials met with an International Monetary Fund delegation to relaunch talks.
An IMF loan worth one billion euros (1.3 billion) was frozen in February 2012 as the previous government had not complied with budget commitments.
No details on a possible agreement have been disclosed yet.
Earlier, the IMF warned Belgrade that its budget deficit could reach 8.3 percent of GDP if no austerity measures were taken.