Pavle Petrovic, President of the Fiscal Council

Pavle Petrovic (BETAPHOTO/MILAN OBRADOVIC)

Fiscal Council chairman Pavle Petrovic is again being targeted by the ruling bloc’s criticism, this time for saying that by postponing the introduction of pay grades for public sector employees the government had announced that it was giving up on reforms of public administration.

The Fiscal Council has recommended introducing pay grades to put order in the payment of public sector salaries so that all state officials doing the same job are paid the same amount. So far, these reforms which were insisted on by the Fiscal Council (and the International Monetary Fund, too, which has an advisory arrangement with Serbia) were postponed several times.

During the adoption of the 2019 budget the government pledged that pay grades would be introduced as of January 2020, but recently it stated that it was moving the deadline by another six months.

No official information has been given as to why the implementation of the Law on the System of Pay Grades, which was adopted in 2017, will begin in July next year, possibly not even then, but the unofficial interpretation of this is that the relevant ministries need time to perform a complete analysis of the effects, primarily financial, that the law will bring.

Payments in the public sector are currently calculated on the basis of 23 different bases, over 500 basic coeficients and over 200 bonuses to regular salaries.

Petrovic has also warned that it is unjustifiable to use budget funds for solving the problem of people who took out loans indexed in Swiss francs, but a law enabling this was adopted in April. According to the Fiscal Council, the Law on Converting Housing Loans Indexed in Swiss Francs envisages substantial spending, around RSD10bn, which is baseless.

The law is at the same time a precedent that carries fiscal risks as it pertains to a group of debtors who have yet to pay what they owe to banks in Swiss Francs, and not to all debtors.

When it was preparing the law, the Serbian Cabinet did not consult with the Fiscal Council even though Petrovic warned that the proposed expenditure of public funds to help loan users could be a precedent and pave the way to new budget expenditures.

The chairman of the Fiscal Council, who has been performing this job since 2011, has constantly been pointing out that Serbia needs more growth than it has to lower the difference between it and developed countries and has proposed that the budget surplus not be spent on hiking salaries in the public sector and pensions, but on investments that lead to growth, primarily in infrastructure and ecology.

The Serbian Cabinet has not heeded these recommendations either and has almost on a daily basis been announcing that salaries and pensions would be raised. Serbia’s problem, according to Petrovic, is insufficient public investment which equals 18 percent, while the countries of central and eastern Europe average 22 percent.

“The economic ambient in Serbia has not changed since 2008, politicians are doing only things that give noticeable results, because the building of institutions takes years,” Petrovic keeps pointing out, saying that Serbia needs to grow five percent a year, instead of the current 3.5 percent and that to achieve this it needs to curb corruption, advance the rule of law, raise public and private domestic investment and improve the education system.

He believes that public utility companies, national and local, need to raise their level of investment and that the Elektroprivreda Srbije power company, when reformed, could raise investment by as much as EUR200 million or 0.5 percent of GDP.

“Instead of that, Elektroprivreda Srbije has been investing below the level of amortization for years, which is why my recommendation is that the government become more engaged on reforms of this company because that would boost growth,” Petrovic said.

Despite not accepting Petrovic’s recommendations and those of his colleagues in the Fiscal Council, the terms of all three members of the body were extended in 2017. He was nominated by Serbian President Aleksandar Vucic, who explained that Petrovic’s strong, serious and constructive criticism had contributed greatly to the success of the government’s economic policy in the previous term.

“I am confident that his professional and personal integrity, as well as his actions as president of the Fiscal Council so far represent a guarantee for the Council’s useful and quality work in its new mandate,” Vucic said in a proposal handed to parliament.

Petrovic was picked for his first term as head of the Fiscal Council during Boris Tadic’s tenure as president. Although a non-partisan figure, he was close to Tadic’s Democratic Party and especially the then prime minister, Mirko Cvetkovic, with whom he owned the Ces Mecon consultancy.

In his public criticism of the way that public finance was being conducted during Cvetkovic’s term, Petrovic consistently warned of the high participation of the public debt in GDP and proposed lowering public sector salaries and pensions to put order in the state treasury. The new authorities accepted this recommendation in 2014 when salaries and pensions were cut as part of fiscal consolidation.

Petrovic clashed with the Serbian Cabinet when it removed the indexation of pensions, last year, that is, their harmonization with GDP growth and inflation, as he believes that the lack of clear criteria for setting the size of pensions gives the government the discretionary right to set their amounts depending on its political needs and enables it to manipulate this segment of voters.

He also criticized the authorities’ refusal to discontinue a ban on public sector employment at the end of 2014 as, according to him, this affected the quality of public sector services, while at the same time incompetent party members are being employed for certain, limited periods.

Recently, while presenting an annual report in parliament on the Fiscal Council’s work, Petrovic proposed introducing a new fiscal strategy according to which a special law would be brought to limit the size of the public debt in terms of GDP. For the time being, it is regulated by the Law on the Budget System which envisages 45 percent as the limit.

Petrovic is a professor emeritus at the Belgrade School of Economics and his main interests include quantitative studies in the area of macroeconomics and macroeconomic policy. He publishes his works in leading global magazines and was a guest researcher at the universities of Harvard, Princeton, Cornell.

He taught econometrics and macroeconomy at the Belgrade School of Economics until 2015. From 2007 to 2011 he was the editor of the Quarterly Monitor of Economic Trends and Policies in Serbia, a publication which regularly examines fiscal policy and reforms in Serbia.

Petrovic was the assistant minister of finance from 2001-2002 for macroeconomics and fiscal policy and chairman of the National Bank of Serbia’ Council of Governors.

The legal obligation of the Fiscal Council is to evaluate bills on the budget and fiscal strategy and analyze a sizeable number of legal proposals with fiscal implications, and Petrovic managed the composition of special thematic analyses by the Council which successfully directed attention to the biggest fiscal risks and structural problems of public finance in Serbia.

Among them was a major study on fiscal consolidation and necessary reforms in 2012, the risks that stem from the poor operation of public and state companies, the necessity to boost public investment and invest in infrastructure and problems in local public finance.

In addition, Petrovic and his associates have published several works in the area of macroeconomic and fiscal policy, in which he reflects on Serbia’s experiences and those of comparable countries with fiscal consolidation and the connection between fiscal consolidation and economic growth.

Petrovic was born in 1947 in Belgrade, where he finished the School of Economics and obtained a Ph.D. He landed his first job in the Institute for the Economics of Industry.

He was selected as an assistant teacher at the School of Economics in Belgrade in 1972 and became a regular professor 20 years later. His Ph.D. paper was titled, Multisector Models and Application in Analyzing the Yugoslav Economy.

He worked on a study on the effects of crisis in transitional Europe organized by the Institute from Vienna and Brussels. During 1995 and 1996 he intensely cooperated with then governor of the National Bank of Serbia Dragoslav Avramovic and led a project on economic stabilization and necessary reforms in Serbia during 2000. The project was launched by the opposition.

He is married and the father of two. He speaks English.