Press Release No. 15/395

Press Release: IMF Staff Concludes Visit to Serbia

September 1, 2015

An International Monetary Fund (IMF) mission, led by James Roaf, visited Belgrade during August 20-September 1, 2015, to hold discussions on the second review under Serbia’s precautionary Stand-By Arrangement (SBA) with the IMF. At the conclusion of the visit, Mr. Roaf issued the following statement:

“The mission reached staff-level agreement with the authorities, subject to approval by IMF Management and the Executive Board, on the set of policies needed to complete the second review under the precautionary SBA. Consideration by the Executive Board is tentatively scheduled for mid-October. The completion of the review will make an additional SDR 117 million (€147 million) available to Serbia under the SBA, bringing the total funds available to SDR 421 million (€528 million). The Serbian authorities have indicated that they do not intend to draw on the resources available under the arrangement.

“The program is delivering good results. On the back of strong policies, Serbia has returned to positive economic growth, employment is rising and unemployment falling. Improved confidence has also helped Serbia avoid adverse spillovers from developments in Greece or in emerging markets in recent months. The IMF mission revised up the real GDP growth projection for 2015 to 0.5 percent. This somewhat improved economic outlook reflects the impact on domestic demand of lower oil prices and stronger-than-expected private sector wages, as well as a better export performance. Inflation remains low, on account of low import prices, delay in administered price adjustment, and economic activity remaining below potential. Over the medium term, growth is expected to accelerate, depending on continued sound macroeconomic policies and stepped-up structural reforms.

“Fiscal performance of Serbia in the first half of 2015 was strong. The general government deficit remained considerably lower than projected, mainly owing to improved revenue collection, but also a shortfall in public investment. While one-off revenues made sizable contributions, stronger-than-projected tax collections are encouraging. The fiscal overperformance in 2015 will be saved for debt reduction. Looking forward, the extent of permanent revenue gains, and relatedly the scope for any potential additional spending for 2016, will be assessed during the third program review in the context of the 2016 budget preparation. Steadfast implementation of fiscal policies that Serbia committed to in the program, including public employment rightsizing, will be crucial to keeping current expenditures within the program targets in the remainder of 2015 and beyond.

“Anchored inflation expectations and the sizable fiscal consolidation have enabled the rebalancing of macroeconomic policies, as envisaged in the program. The recent easing of monetary policy is appropriate and would support the economic recovery. Further policy rate cuts should take into account inflation expectations, the external financing environment, and the progress in fiscal consolidation. The mission also welcomes substantial progress in the authorities’ initiatives in the financial sector area. Adoption of the strategy to address the backlog of nonperforming loans and launching of the special diagnostic studies of banks’ asset quality are significant steps toward strengthening financial sector stability and improving financial intermediation.

“The structural reform agenda is progressing, and the mission welcomes the improved payment discipline of the public sector. However, the authorities should strengthen the implementation of reforms of state- or socially-owned enterprises, including through privatization, restructuring, or bankruptcy. The authorities should also step up other structural reforms to stimulate private sector investment and growth. In this regard, the mission welcomes the authorities’ reaffirmed determination to press ahead with a broad-based structural reform agenda.”