Press Release No. 12/313

Press Release: Republic of Serbia-Conclusions of an IMF Staff Visit

September 14, 2012

An International Monetary Fund (IMF) mission headed by Zuzana Murgasova visited Serbia on September 10–14, 2012 for a fact-finding staff visit. Ms. Murgasova issued the following statement today in Belgrade:

“Serbia’s economic outlook is clouded by weak economic conditions and sizable domestic and external imbalances. GDP is expected to fall by about ½ percent this year, followed by only a modest recovery in 2013, with downside risks. Inflation is set to accelerate over the next few months, largely reflecting weather-related food price shocks. The external current account deficit is expected to reach double digits this year. Large public spending increases and the resulting high deficit relative to the 2012 budget are set to raise the public debt ratio above 60 percent of GDP by end-year. The situation has been complicated by deteriorating investor confidence and rating downgrades.

“In this context, Serbia’s authorities should urgently elaborate and embark on a comprehensive set of policies to credibly restore fiscal and external viability and boost growth.

“In the fiscal area, tangible consolidation is needed. On balance, the draft 2012 supplementary budget adopted by the government would not achieve this objective. The budget includes appropriate revenue-enhancing measures and limits mandatory spending indexation. However, these savings are more than offset by higher expenditure, including new initiatives. The mission recommends additional spending restraint to be considered before the 2012 supplementary budget is enacted. For 2013, the government’s deficit target is broadly appropriate, but achieving it will require significant additional measures. In addition, prompt adoption of a clear and realistic medium-term fiscal consolidation program to reduce the public debt below 45 percent of GDP, as required by the Budget System Law, is needed to achieve fiscal credibility and sustainability. This should be complemented by a wide-ranging ambitious structural reform agenda to unlock Serbia’s growth potential.

“In the monetary area, the mission welcomes the authorities’ intention to maintain the inflation-targeting regime needed for macroeconomic stability. The mission emphasized the need for corrective measures to help strengthen NBS autonomy, which has been eroded by recent changes to the NBS law.

“In terms of next steps, the authorities have requested discussions on a new IMF-supported program. Staff will assess the authorities’ request in the context of their policy plans and their implementation in the period ahead.”