IMF demands for electricity price to be permanently tied to inflation

The Government of Serbia, together with the World Bank, needs to complete the analysis of whether the electricity price will go up, when and by how much by the end of the month. This is what the report published by the International Monetary Fund (IMF) on its website says. In addition to the question of the price of electricity, the IMF has also given a proposition about the harmonization of the growth of pension. A delegation from Washington arrives for the next control procedure in a month.

The Government of Serbia is still making calculations, but the IMF is determined – this year, the price of electricity in Serbia should go up by at least as much as the inflation has grown, which is slightly over 2%.

An associate of the Economics Institute, Ivan Nikolic, reminds that the price of electricity for households in Serbia is lower than in the surrounding countries, especially EU states.

– On the other hand, the earnings are also very low, which brings us to the social argument, which is strong and which the government is putting forth – Nikolic says.

Unofficially, the Fund insist on having a formula adopted by which electricity price increases would be permanently tied to the inflation and on having an exact date set for the price going up.

In the negotiations, Serbian officials note that electricity is cheap, but that each household sets aside more than 5% for it, which is the highest percentage in Europe. Experts say that this creates a vicious circle.

– The price of electricity encourages households to rely more on electricity for heating and other needs – Sasa Randjelovic, a professor at the Faculty of Economics in Belgrade, says.

Salary raises and inflation to be included in the calculation

When it comes to the calculations, the IMF report reveals how pensions are to be raised.

50% of the salary raises will be added to 50% of the inflation. This means that, if the prices grow by 2% and salaries grow by 6% in a calendar year, pensions will be raised by 4%.

– This formula has existed before. It was abandoned when we reduced pensions in order to meet the financial criteria. As this is now complete, we are going back to the formula we've had – we harmonize with the growth of consumer prices and with the growth of nominal wages – Ivan Nikolic explains.

He says that the implementation of the so-called Swiss formula will begin in the first half of 2020.

What remains to be set is the date when pensioners can expect their pensions to be raised. Before the crisis of 2008, pensions were raised twice a year, in April and in October.

– Nearly all European states have some kind of a rule for the raising of the pensions each year – Professor Randjelovic says.

The IMF report also shows that Serbia is a country where foreign investors are happy to come, but which its own populace is leaving with increasing frequency.

The IMF therefore suggest to the government for the first time in this report to adopt a set of measures which would try to prevent the brain drain.

Međunarodni monetarni fond-MMF Beograd

Svetska Banka-WB Beograd

Ekonomski Institut a.d. Beograd

Ekonomski fakultet Beograd

Vlada Republike Srbije

International Monetary Fund

IMF

Sasa Randjelovic

price of electricity

electricity

electricity price increase

inflation rate in Serbia

pension raises

salary raises