Fitch revises Serbia's outlook to negative

Ratings agency Fitch on Thursday said it had revised Serbia's outlook to negative while affirming the country's long-term foreign and local currency sovereign credit ratings at "BB-", AFP reports.

"The negative outlook reflects the deterioration in the country's fiscal and external financing position and weak economic growth outlook," Fitch explained.

"Rather than focusing on correcting a rising fiscal deficit and public debt ratio, the new government has amended the central bank law in a manner which has dented investor confidence and might complicate the agreement of a new IMF deal," it added.

Another ratings agency, Standards & Poor's, downgraded Serbia last week to "BB-" with a negative outlook, and also cited the recently adopted legislation that has increased parliamentary control over Serbia's central bank as one of the reasons.

Fitch said Thursday that its current projection assumes the government will introduce some fiscal consolidation measures next month as promised.

"However, the new government has already ruled out any freezes on the wage and pension bill, the two biggest items on the expenditure side," it noted.

The agency revised its 2012 fiscal deficit forecast to 6.5 percent of gross domestic product from 5.5 percent of GDP back in May this year.

"Any further delay in the adoption of a supplementary budget increases the likelihood that the 2012 fiscal deficit will overshoot Fitch's projection," Fitch added.

Serbia's government has said it wants to restart talks with the International Monetary Fund which in February froze a one billion-euro stand-by loan because Serbia did not keep to figures agreed for the 2012 budget.

The 2012 budget forecasts 1.5 percent economic growth but the IMF has a much lower estimate of only 0.5 percent and the country has one of the highest unemployment rates in Europe at nearly 25 percent.