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Serbia to invest 5 billion euros to cope with coronavirus impact

BELGRADE (Reuters) – Serbia plans to offer about 5 billion euros ($5.54 billion) in loans and subsidies to businesses to help them cope with the economic impact of the coronavirus, President Aleksandra Vucic said.

The state will also make a one-off payment of 100 euros to every Serbian citizen older than 18, or around 5 million people, the entire electorate, Vucic said.

The recovery program, which the president announced late on Sunday, would lead to an increase in the deficit this year that would be covered from financial reserves and borrowing. The deficit was originally forecast at 0.3% of economic output.

So far, 13 people in Serbia, out of a population of 7 million, have died from the coronavirus and 741 have been infected. To counter the outbreak, Serbia introduced stringent measures, including a state of emergency and an overnight lockdown for all.

Under the plan, agreed with the International Monetary Fund, Serbia’s public debt should not exceed 60% of GDP, from 52.4% at the end of 2019, Vucic told the Belgrade-based Prva TV.

“We will have problems, but less than others,” he said, adding that more details would be announced on Tuesday.

Serbia’s currency reserves in February stood at 13.458 billion euros, down from 13.694 billion euros a month earlier.

The country’s economy will miss its 4% growth target for 2020 and face a recession, but Vucic said Serbia should rebound to growth in 2021.

To aid recovery, local banks are expected to “throw in” around 2 billion euros in a fund for which the state would secure an additional 1.25 billion euros in guarantees. Serbia’s development fund would add another 200 million euros.

“We want to inject even more money into economy,” said Vucic who is also the head of the ruling Progressive Party, which faces general elections this year.

Under the plan, Serbia will resort to an array of measures, such as corporate bonds to boost major firms, including state-run Telekom Srbije telecom, the Elektroprivreda Srbije energy producer and Air Serbia <JAT.UL> flag carrier.

Last week, Fitch Ratings maintained Serbia’s long-term ratings at BB+, and affirmed its medium-term outlook despite the crisis caused by the coronavirus outbreak.

Vucic said the state would use 700 million euros to pay minimum wages of 30,367 dinars ($288.58) and allow tax delays for micro and small enterprises for the three months after the end of the state of emergency to avoid job loss.

“We want to boost liquidity … of (small) enterprises, … of every hairdresser, baker and taxi driver,” Vucic said.

To absorb the impact of the coronavirus, the Serbian central bank has already lowered its benchmark rate by 50 basis points to 1.75% and organized swap currency auctions to add liquidity to the local interbank market.

(Reporting by Aleksandar Vasovic; editing by Edmund Blair, Larry King)