* Serbia to ask IMF to back higher fiscal deficit
* Crisis has forced Serbia to change plans
* Serbia to issue 6-month, 9-month treasury bills
(Adds quotes, detail)
By Aleksandar Vasovic
BELGRADE, May 28 (Reuters) - Serbia will ask the International Monetary Fund to approve an expansion of its fiscal deficit to 4 percent of output from a previously agreed 3 percent, Finance Minister Diana Dragutinovic said. "According to our latest figures, I think a fiscal gap of four percent of GDP would be more appropriate for Serbia," she told a panel discussion organised by Reuters on Thursday.
"Faced with a choice of low and stable inflation and fiscal stimuli, the IMF seems to have chosen the latter," she added.
Belgrade has recently drawn the first 788 million euro ($1.09 billion) tranche of a 3.0 billion euro IMF loan approved earlier this month to shield Serbia's economy and currency from the effects of the global downturn.
Central bank Governor Radovan Jelasic told Reuters earlier this month the IMF should not allow Serbia to expand its fiscal gap beyond three percent of GDP, fearing this could hurt Serbia's ability to repay the debt. But the crisis has forced change, Dragutinovic said, adding that the 2009 budget would have been balanced if Serbia's GDP was stagnating or growing slightly this year.
"We all change and so does the IMF," she said. "Our (originally) planned fiscal deficit was three percent of GDP and it was the lowest among all the countries that sought IMF help."
Serbia was the first Balkan country to turn to the IMF for help after mounting financial turmoil triggered some 1 billion euros of capital to flee the country. Neighbouring Bosnia has just agreed a 1.2 billion euro IMF loan.
The IMF expects Serbia's economy to contract by 2 percent this year. But Milojko Arsic, a member of the central bank's non-policy making supervisory board, said the economy had already shrunk by 6.5 percent in the first quarter and was unlikely to recover soon. "The economic contraction this year could be between four and five percent," Arsic told the same panel.
Arsic said he was in favour of a higher fiscal gap in a year of sharp economic slowdown, when each percentage point of economic decline shaves 0.4 percent off government revenues.
To prop up the economy, the central bank should cut its key policy rate further from 14 percent "to somewhere just above the inflation rate", Arsic said. April inflation was 8.4 percent.
Dragutinovic also said Belgrade planned to step up borrowing and had already secured 175 million euros in commercial loans from local banks.
The state planned to start issuing 6-month and 9-month treasury notes within weeks, and falling inflation should soon pave the way for maturities of more than one year, she added. (Writing by Gordana Filipovic; editing by Knut Engelmann and Stephen Nisbet)