Press Release No. 09/481

Press Release: IMF Executive Board Completes Second Review Under Serbia’s Stand-By Arrangement and Approves €349.6 Million Disbursement

December 23, 2009

The Executive Board of the International Monetary Fund (IMF) today completed the second review of Serbia’s economic performance under a program supported by a Stand-By Arrangement (SBA). The completion of the review enables the immediate release of SDR 319.6 million (about €349.6 million or US$499.7 million), bringing total disbursements under the program to SDR 1.02 billion(about €1.12 billion or US$1.6 billion).

In completing the review, the Executive Board also granted a waiver for the non-observance of the end-September general government deficit performance criterion, and approved a modification of the end-December quantitative performance criteria in relation to the general government deficit and the 2009 inflation targets.

Serbia’s initial 15-month SBA was approved on January 16, 2009 (see Press Release No. 09/12) for SDR 350.8 million (about €384.1 million or US$548.4 million). The arrangement was extended by one year and augmented to SDR 2.62 billion (about €2.87 billion or US$4.01 billion) on May 15, 2009 (see Press Release No. 09/169) to support the government's economic program amid a sharper than expected impact from the global financial crisis.

Following the Executive Board’s discussion on Serbia, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, said:

“The impact of the global financial and economic crisis on Serbia has so far been successfully contained. The authorities’ policies supported by the SBA—along with their actions to stabilize the markets—boosted international reserves, eased pressures in the foreign exchange market, and helped mobilize significant international financial assistance in support of Serbia’s budget and economic recovery. Although the decline in domestic demand has been significant, the contraction in output has been limited.

“The authorities’ program aims to help address the challenges posed by the economic downturn, and to restore sustainable public finances over the medium term. This will be crucial to continue safeguarding financial stability, and to create the conditions for a return to dynamic—yet sustainable—economic growth.

“To this end, the authorities have embarked on an ambitious fiscal adjustment strategy focusing on structural spending reforms covering public administration, education, health care, and pensions. While these reforms are expected to yield significant and sustainable pay-offs, savings will accrue only over the medium term, and strengthened budget rules will be needed to contain implementation risks.

“The central bank’s monetary and exchange rate policies have been prudent, as reflected in continued disinflation. While there might be scope for further gradual easing of the monetary stance should favorable inflation developments continue, upside risks from high inflation expectations need to be monitored carefully.

“The authorities’ financial sector support program has successfully safeguarded financial stability during the market turmoil. The authorities are committed to continued vigilance in the face of high and rising non-performing loans, and to improve Serbia’s debt restructuring framework.

“Further progress will have to be achieved in the area of structural reforms, notably as regards privatization and the business environment, in order to lift Serbia’s economy on a high and sustainable growth path in the period ahead.”