Belgrade - An International Monetary Fund (IMF) mission on Thursday began reviewing Serbia's economic policies, with two tranches of a 4-billion-dollar standby loan hinging on its verdict.

The IMF and Serbia agreed to the two-year loan in March. The first 1-billion-dollar tranche was disbursed in May, in accordance with the planned schedule.

But the second instalment was halted in September when Serbia failed to persuade the IMF that it would keep its 2010 budget deficit below 3.5 per cent of its gross domestic product.

Prime Minister Mirko Cvetkovic's government presented a cost- cutting plan to the IMF in September, but it did not go far enough to reach the targeted deficit level.

Hard-hit by the economic crisis, Serbia has focused its efforts on cutting spending, including the firing of thousands of employees and freezing salaries in the state administration. But is has refused to boost revenue by hiking the value-added tax.

Serbia has asked Moscow for a loan to cover the budget deficit next year, though the status of the loan remained unclear after a state visit Tuesday by Russian President Dmitry Medvedev. The IMF generally allows borrowing as a measure to bridge the shortfall.

Economist Jurij Bajec, a member of the team which advises Serbian president Boris Tadic, on Wednesday said that Serbia is also set to ask the IMF to allow it a 4-per cent deficit next year.

The IMF mission is to to complete the review on November 4. (dpa)