Press Release No. 24/458

IMF Executive Board Concludes the Fourth Review Under the Stand-By Arrangement for the Republic of Serbia, Cancels the Stand-By Arrangement, and Approves a 36-Month Policy Coordination Instrument

December 9, 2024

• The IMF Executive Board approved a 36-month Policy Coordination Instrument (PCI) with the Republic of Serbia, following the conclusion of the fourth and final review under the Stand-By Arrangement (SBA) and cancellation of the SBA to facilitate transition to the PCI.
• Under the SBA, Serbia pursued ambitious reforms, helping achieve strong macroeconomic outcomes and a first ever investment grade rating in October 2024. By building on these accomplishments, the PCI will support the authorities in their efforts to demonstrate continued commitment to sound policies, sustain reform momentum, and anchor fiscal discipline.
• Under the PCI, public debt is slated to decline to 45 percent of GDP in 2025 and lower thereafter, balancing continued fiscal prudence with spending needs, including for public investment. Further progress with fiscal-structural and state-owned enterprise reforms will be crucial complements to fiscal discipline.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) approved a 36-month Policy Coordination Instrument (PCI) with the Republic of Serbia, following the conclusion of the fourth and final review under the SDR 1.89 billion (approximately EUR 2.4 billion) Stand-By Arrangement (SBA) approved by the IMF’s Board on December 19, 2022. While completion of the SBA review authorized additional access to SDR 316.47 million (about EUR 400 million), the authorities continued to treat the SBA as precautionary and did not make the available purchases. They cancelled the SBA following the completion of its final review, ahead of its expiration on December 18, 2024, to facilitate the transition to the PCI.

Under the SBA, the fiscal deficit and public debt declined despite challenging circumstances. Inflation fell to the central bank’s inflation tolerance band amid strong growth and labor markets. Reserves are at a record high. The financial position of the largely state-owned energy sector was strengthened while public investment management and state-owned enterprise (SOE) governance reforms made welcome progress. The financial system appears sound.

Growth is projected close to 4 percent in 2024 and higher in coming years based on continued real wage and employment gains and rising public investment. Inflation is expected to converge over time to the 3 percent central target of the tolerance band amid robust domestic demand and supply-side constraints. The current account deficit is anticipated to widen on strong private consumption and infrastructure spending, but foreign direct investment inflows will allow for further reserve accumulation.

Under the PCI, the fiscal program is based on a fiscal deficit of no more than 3.0 percent of GDP over 2025-27 and 2.5 percent of GDP over 2028-29, which balances public spending priorities with fiscal discipline, helps ensure project prioritization within an ambitious public investment envelope, and further reduces public debt. Accompanying fiscal-structural and SOE reforms, including in the energy sector, will contribute to alleviating fiscal risks. A restrictive monetary policy stance will help lean against a cyclical economic upswing and prevailing inflationary risks.

At the conclusion of the Board discussion on the Republic of Serbia, Mr. Bo Li, Deputy Managing Director, made the following statement:

“Under the Stand-By Arrangement (SBA), the Serbian authorities pursued ambitious reforms, helping achieve strong economic outcomes, including reducing fiscal deficits, public debt, and inflation, while maintaining strong growth and increasing international reserves to record highs. This strong performance contributed to Serbia’s first ever investment grade rating in October 2024.

By building on the SBA, the 36-month Policy Coordination Instrument (PCI) program will support the Serbian authorities in their continued commitment to sound macroeconomic policies, fiscal discipline, and broader structural reforms.

Fiscal deficits of no more than 3.0 percent of GDP during 2025–27 under the PCI will help balance fiscal discipline with priority spending, including for public investment. This, together with full adherence to special wage and pension fiscal rules, should see public debt fall to 45 percent of GDP in 2025 and below this level in later years.

Given ambitious public investment plans, continued improvements to public financial, public investment, and fiscal risk management, as well as fiscal transparency, are critical. These efforts should be accompanied by public workforce planning and state-owned enterprise (SOE) governance reforms, including in the energy sector. Focus on energy security and the green transition will also be important.

A restrictive monetary policy stance will help guard against upside inflation risks. The stabilized exchange rate has served Serbia well, but greater flexibility could be considered over time. While the financial sector remains sound, continued vigilance is warranted and ongoing efforts to improve regulatory, supervisory, and AML/CFT frameworks, are welcome.”