Government officials tend to talk up their country's prospects. But after Serbia's deputy prime minister told local TV his country faced bankruptcy, analysts were quick to point out that Serbia actually had sufficient funding to last through 2013.
"It isn't imminently close to bankruptcy, at least that was my sense from country visit last week. They have enough cash and financing to get them through to end-year," said Timothy Ash, the head of emerging market research at Standard Bank, after Deputy Prime Minister Aleksandar Vucic told Prva TV that Serbia was on the "verge of bankruptcy".
Ash said Vucic did not plan to frighten investors with his statement — despite appearances — but to boost public and political support for much-needed fiscal reforms, and expedite the delivery of a $2-$3 billion loan from the United Arab Emirates (UAE).
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"This is all aimed at managing domestic political expectations as the government announces difficult but urgently needed fiscal consolidation measures," Ash said. It might also encourage Abu Dhabi speed the release of the loan, he added.
Economic recovery in Serbia and its Balkan neighbors has lagged behind the rest of eastern Europe, and Serbia's economy grew by 0.2 percent year-on-year in the second quarter, down from 2.7 percent in the first.
Serbia is also hamstrung by a hefty budget deficit, which is seen exceeding 5.5 percent of gross domestic product (GDP) in 2013, and a debt-to-GDP ratio of over 60 percent.
Tim Haaf, a senior portfolio manager and emerging market strategist at Pimco, noted that Serbia actually had several means available by which to fund itself until year-end.
"Serbia has about 2 billion euros ($2.7 billion) external funding needs left for the year, which can be done either through bilateral loans (currently the government is negotiating a loan from the UAE), Eurobond issuance or a combination of both," Haaf told CNBC.
He added that Serbia might also negotiate a new loan from the International Monetary Fund (IMF) — which will complete a visit to Belgrade on Monday — although this would likely entail strong austerity conditions, such as cutting its oversized public sector. A loan program was halted in February 2012 after Serbia's proposed budget for the year failed to gain IMF approval.
"Given that Serbia's last IMF program has fallen off-track; we would expect longer negotiations here. Still, at this point the government is in a position to use several financing options."
Marcus Svedberg, the chief economist at East Capital Asset Management, concurred that the Balkan state was unlikely to face either bankruptcy or a credit default.
"They have their insurance policy: the IMF… it is a relatively small economy, it does not enormous amounts of money," Svedberg told CNBC.
If Vudic's statement was part of a scaremongering strategy, than he was following in the footsteps of his colleagues in Hungary, added Ash.
Various Hungarian politicians warned the country might default on its government debt repayments in late 2011, but despite all three major ratings agencies downgrading its debt to junk status, Hungary never actually defaulted.
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"It (Serbia) reminds me a bit of Hungary in late 2011 when various Fidesz party officials used the 'D' word to encourage the pace of fiscal reforms," Ash said.