Press Release No. 18/233

IMF and Serbia Reach Staff-Level Agreement on a Policy Coordination Instrument

June 13, 2018

A staff team of the International Monetary Fund (IMF), led by James Roaf, visited Belgrade during June 11–13, 2018 to conclude discussions on the authorities’ economic reform program to be supported by the IMF with a 30-month Policy Coordination Instrument (PCI). Consideration by the Executive Board is tentatively scheduled for mid-July. At the conclusion of the visit, Mr. Roaf made the following statement:

“The IMF mission reached staff-level agreement with the Serbian authorities, subject to approval by IMF Management and Executive Board, on the macroeconomic policies and reforms to be supported with a PCI. The PCI is a new instrument introduced by the IMF in 2017 to support countries, such as Serbia, that can benefit from the policy framework provided under an IMF program, but do not require IMF financial support. The PCI-supported program aims at maintaining macroeconomic and financial stability and advancing an ambitious structural and institutional reform agenda to foster rapid and inclusive growth, job creation and improved living standards.

“Under these policies, Serbia’s macroeconomic outlook remains strong. Growth reached 4.6 percent y-o-y in the first quarter, and is expected to reach at least 3.5 percent this year. Inflation remains low, and is projected to be around 2 percent by-end 2018, supported by the appropriate monetary policy of the National Bank of Serbia.

“Fiscal policy under the PCI aims at preserving the hard-won gains to keep public debt on a firm downward path, while supporting stronger sustainable growth. We expect another year of fiscal surplus in 2018. For 2019 onwards, the program targets a small overall deficit, aiming to reduce public debt to below 50 percent of GDP by the end of the program, while providing space for an increase in capital spending and some targeted reductions in the tax burden on businesses and labor. It would also accommodate the unwinding of the crisis-era temporary pension cuts, and the transition to the new public wage system, while ensuring that the pension and wage bills do not increase as shares of GDP.

“The program will advance a comprehensive set of public administration reforms. Completing the employment and wage system reforms will be critical for improving the efficiency of public services and containing current expenditure. Stronger public investment management frameworks will improve execution and reduce gaps in public infrastructure. Reforming tax administration will help to increase efficiency of revenue collection and improve the business climate. Strengthening fiscal rules will secure sustainable budgetary policies over the medium terms.

“The current inflation targeting framework remains appropriate to maintain stable inflation and absorb external shocks. The PCI aims at further strengthening coordination with PDA for liquidity management purposes and promoting dinarization. Financial sector supervision and regulation reforms will focus on enhancing resilience, fully harmonizing with EU standards, and completing reforms of state-owned financial institutions. The PCI will also support the authorities’ efforts to address identified weaknesses in the AML/CFT framework.

“The implementation of a comprehensive set of structural and institutional reforms is aimed to improve the business environment to support higher private sector-led growth. Policy priorities include fighting the grey economy; further increasing labor force participation; reforming or resolving public and state-owned enterprises; and improving the quality and transparency of national statistics.

“The mission is grateful for the authorities’ hospitality and close cooperation.”