World Bulletin/News Desk

Serbia's prime minister announced long-awaited pension and public sector pay cuts on Thursday, hoping to curb a budget deficit of over 8 percent of output and convince the IMF to agree a new loan deal.

In a lengthy interview on state television, Aleksandar Vucic said public sector salaries of over 25,000 dinars (211 euro) per month would be cut by 10 or 10.5 percent, the precise figure to be specified in a revised budget expected before parliament next week.

He said the revision would include progressive pension cuts of between 3.1 percent for the poorest pensioners and 10 percent for those receiving the most.

The Balkan country hopes to begin formal negotiations within weeks on a new precautionary loan deal with the International Monetary Fund, a safety net that is crucial to reassuring investors, bringing down borrowing costs and relieving pressure on the dinar.

"We will formalise this in the coming days and we will have more talks with the IMF," said Vucic. "I'm hoping to get their support as it would be a good signal for investors."

Armed with a mandate unprecedented since the rule of late Serbian strongman Slobodan Milosevic in the 1990s, Vucic has vowed to cut back Serbia's public sector.

He risks a backlash from public sector unions and pensioners, spared cuts by successive governments since Serbia came in from the cold with the ouster of Milosevic in 2000 after a decade of war and sanctions.

"We boarded the Titanic when it had already hit the iceberg," he said of his government. "And now we have to do everything to save everyone on board."

The budget deficit is forecast to reach 8.3 percent of gross domestic product, with public debt breaching 70 percent, far higher than the IMF recommends for similar emerging economies.

Serbia's Fiscal Council, the government's chief economic advisory body, had called for 15 percent cuts to both pensions and public sector wages, which Vucic said would be too painful.