Press Release No. 15/478

Press Release: IMF Executive Board Completes Second Review of Stand-By Arrangement with Serbia

October 23, 2015

The Executive Board of the International Monetary Fund (IMF) on October 23, 2015 completed the second review of Republic of Serbia’s economic performance under the Stand-By Arrangement (SBA). The completion of the review will make available the cumulative amount of SDR 420.93 million (about €531.8 million). The Serbian authorities have indicated their intention to continue treating the arrangement as precautionary.

The Executive Board approved the 36-month, SDR 935.4 million (about €1.2 billion at the time of approval) SBA for Serbia on February 23, 2015 (see Press Release No. 15/67).

Following the Executive Board’s decision, Mr. Min Zhu, Deputy Managing Director and Acting Chair, issued the following statement:

“Serbia continues to make good progress under the precautionary Stand-by Arrangement. Growth has turned positive despite the significant fiscal tightening this year, the current account deficit has narrowed to a sustainable level, and confidence has improved. At the same time, this good performance remains vulnerable to downside risks. Decisive implementation of all program measures is essential for achieving public debt sustainability, bolstering financial sector resilience and improving competitiveness.

“Fiscal over-performance so far this year is encouraging, and sets the stage for achieving the necessary consolidation to place the high public debt firmly on a downward path. In this regard, the space for pension and public sector wage increases is limited and any targeted increases should be contingent on timely progress in public sector rightsizing which is needed for bringing mandatory expenditure to sustainable levels. At the same time, execution of capital expenditure should be improved in order to support Serbia’s growth potential.

“The gradual easing of monetary policy by the NBS has been appropriate in view of still low inflation and ongoing fiscal consolidation. The NBS’s commitment to the inflation targeting regime and exchange rate flexibility is welcome.

“Substantial advancement of the financial sector agenda opens a window of opportunity to improve financial sector resilience and improve financial intermediation. The authorities should follow-up on the special diagnostic studies of banks, including by embedding lessons learned in the supervisory and regulatory framework. Decisive implementation of the recently adopted NPL resolution strategy and the strategy for state-owned banks will be critical for clearing the lending channel and reducing remaining vulnerabilities.

“Continued efforts in implementing the identified structural reforms are key for reducing fiscal risks and supporting competitiveness and growth. The development of the strategies and action plans across the full range of public institutions and SOEs is encouraging. Looking forward, the achievement of program objectives will depend critically on implementation.”