Press Release No. 15/577

Press Release: IMF Executive Board Completes Third Review of Serbia’s Stand-By Arrangement

December 18, 2015

The Executive Board of the International Monetary Fund (IMF) on December 18, 2015 completed the third 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 491.085 million (about €627 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:

“The Fund-supported program is delivering good results. The economy continues to recover on the back of efforts to strengthen public finances, address structural weaknesses, and improve the business climate. However, risks remain. Full implementation of program commitments is needed to achieve program objectives of maintaining macroeconomic stability, restoring public debt sustainability, and strengthening growth potential.

“The fiscal over-performance achieved so far this year is commendable and allows clearance of some past liabilities and inclusion of a modest and targeted increase in public wages and pensions in 2016 budget. At the same time, to place public debt on a firm downward path requires further structural adjustment of around 1.5 percent of GDP in 2016–17. In this regard, the second phase of public sector rightsizing needs to be prepared and implemented expeditiously. In order to improve Serbia’s growth potential, public investment projects need to be well-prioritized and planned, underpinned by feasibility studies and fiscal risk analysis to ensure that projects contribute to growth potential without incurring excessive public debt.

“The fiscal consolidation has provided space for substantial monetary easing. Persistent inflation undershooting in the context of the current uncertain environment calls for cautiously accommodative monetary policy. The NBS’s continued commitment to the inflation targeting regime and exchange rate flexibility is welcome.

“Progress in the financial sector area is encouraging. The completion of the special diagnostic studies of Serbia’s largest banks contributes strongly to financial sector soundness and confidence, while highlighting remaining issues which require further action. In addition, the coordinated actions across government, the NBS and banks envisaged under the NPL resolution strategy will help clear lending channels and reduce remaining vulnerabilities.

“Keeping momentum in implementing the identified structural reforms is essential for reducing fiscal risks and supporting competitiveness and growth. In particular, it is important to take decisive actions toward implementing the commitments in the area of large SOEs, especially in the energy and transport sectors, and timely resolution of enterprises in the portfolio of the Privatization Agency.”