Report on Work of the Ministry of Finance in the First 100 Days of the Government

1. Report on Work of the Ministry of Financein the First 100 Days of the Government Belgrade, September 5, 2007

3. Fiscal policy results • 2007 Budget and related package of tax laws adopted • Macroeconomic indicators • Memorandum on Budget and Economic and Fiscal Policy for 2008, with projections for 2009 and 2010, adopted • Preparation of 2008 Budget, new laws and bylaws, and improvement of the existing ones underway

4. 2007 Budget and tax laws • More money from the budget apportioned for employment, boosting investments, production and export • With adoption of the Budget Law, more resources allocated to AP Vojvodina • National Investment Plan included in current budget expenditure • All contracted liabilities which the government assumed (protocols on education and health care workers’ wages, contracted projects in NIP) fulfilled • Persons buying their first apartments exempted from transfer tax and VAT • Transfer tax on real estate trade lowered from 5% to 2.5% • VAT rate on purchase of computers reduced from 18% to 8% • Excise and customs duties on cigarettes aligned with the CEFTA Agreement

5. Budget execution in January-August 2007

6. Budget inflow and expenditure in January-August 2007

7. Macroeconomic implications of fiscal policy • Fiscal policy for the past several months of the year had a slightly restrictive influence on domestic demand • Result of this policy was low core inflation, whose monthly average to date was 0.3% (around 3.7% on the annual level) • Share of expenditure for public investments increased, as well as for education and health • Future changes in public investments, including NIP, toward strategic projects were initiated (Corridor X)

8. Gross Domestic Product, annual growth rates * projection

9. Retail prices trend, annual growth

10. Foreign trade

11. Share of Republic of Serbia’s public debt in GDP from 2000 till July 31, 2007

12. Memorandum on the Budget for 2008 • Basic priority of fiscal policy is to secure macroeconomic stability by reducing public expenditure • Planned reduction of share of public expenditure in GDP for 2008 by 1.7 percentage points • Key measures are: • limiting wage bill for budget users • reducing public investments from the Republic budget by 20% • reducing expenditure for goods and services from the Republic budget by 10% • reducing subsidies by 5% • Continued structural reforms in the area of public finances planned: further tax reforms (changes of laws), improving structure of government spending, promoting the Ministry’s work

13. Next steps • 2008 Budget : - preliminary estimates around RSD630bn - aspiring toward a balanced budget • Talks with all unions concerning wage bill for 2008 • Privatization of DDOR by the end of the year • EUR100m recapitalization of Komercijalna banka • CUSTOMS ADMINISTRATION– modernization of border crossings • TAX ADMINISTRATION– strengthened control of taxpayers • Restitution Law and property reform

14. Laws and bylaws underway • New laws: Restitution Law Public Procurement Law State Aid Law Law on Public Property/ Property of Local Self-Governments Law on Mandatory Insurance in Transportation Law on Prevention of Money-Laundering and Financing of Terrorism • Changes and amendments to existing laws: Law on amendments and changes to Law on Market in Securities Law on amendments and changes to Insurance Law Law on amendments and changes to Customs Law Law on amendments and changes to Corporate Profit Tax Law