IMF Executive Board Concludes 2013 Article IV Consultation with Serbia

Public Information Notice (PIN) No. 13/76
July 3, 2013

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On July 1, 2013, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Serbia.1


The Serbian economy is recovering from a recession but faces multiple challenges. Robust growth in automotive exports is underpinning the recovery in 2013 and the double-digit inflation is subsiding. However, unemployment well above 20 percent is a major social concern and large fiscal and current account deficits constitute key vulnerabilities. Structural bottlenecks continue to undermine overall competitiveness and constrain Serbia’s growth potential.

Despite some consolidation measures implemented in the second half of 2012, the general government deficit rose to 7¾ percent of GDP in 2012 in part due to bank resolution costs, clearance of arrears, and payments for called guarantees. As a result, public debt reached 62 percent of GDP at end-2012, well above the legal ceiling of 45 percent of GDP. The National Bank of Serbia (NBS) tightened monetary policy to compensate for the fiscal slippage.

The favorable global financial markets situation since late 2012 eased Serbia’s financing and balance of payments pressures, creating scope for a successful placement of several Eurobonds and large foreign inflows into local government securities. This contributed to a reduction of government yields and an appreciation of the exchange rate.

The financial system remains stable overall. Capitalization and liquidity indicators are high and non-performing loans (NPLs) are well-provisioned despite their relatively high level. However, there are pockets of vulnerabilities as two medium-sized public banks had to be recently resolved. The significant euroization of the economy and the large stock of corporate NPLs pose significant challenges as the balance sheet constraints hamper financial intermediation and the economic recovery.

Executive Board Assessment

Executive Directors concurred that strong policies are required to tackle long-standing challenges facing the economy, recently exacerbated by the adverse external environment. Priorities include sustained fiscal consolidation and a rebalancing of monetary policy to reduce external and domestic vulnerabilities, and a comprehensive package of structural reforms to unlock Serbia’s growth potential.

Directors agreed that reversing the rapid rise in the public debt-to-GDP ratio is key to rebalancing the economy. They welcomed the effort embodied in the draft supplementary budget and the authorities’ plans to reduce wage and pension indexation. Most Directors, however, considered that additional measures are necessary. In particular, Directors emphasized the need to contain the public sector wage bill and to undertake a comprehensive pension reform. They also noted that improving tax administration and reducing tax exemptions can contribute significantly to the consolidation effort, and called for more rapid progress on public financial management reforms.

Directors concurred that the inflation targeting framework has served Serbia well, despite the difficulties of implementing inflation targeting in an economy where the bulk of deposits and loans are either in or linked to foreign currencies. They agreed that lower and less volatile inflation would support a greater role for the dinar in domestic transactions and as a store of value, and improve monetary transmission. Against this background, Directors noted that the recent easing of monetary conditions may have been premature, and called on the central bank to step up liquidity absorption to bring money market interest rates closer to the policy rate. Directors agreed that room for additional monetary easing could open up only once fiscal adjustment is well underway and exchange rate pressures subside.

Directors stressed the importance of maintaining financial sector stability and current prudential standards. They considered that improvements in banks’ balance sheets are necessary to boost private sector credit and support the economic recovery, and welcomed recent measures to facilitate the resolution of non-performing loans. Directors also underscored the importance of continued careful supervision and a comprehensive strategy to improve the management of public banks.

Directors emphasized that more reforms are necessary to increase labor force participation, reduce persistent unemployment, and improve competitiveness. Priority areas include labor market reforms, streamlining regulations, and improving the business environment. Directors also welcomed the authorities’ plans for restructuring state-owned enterprises.

Republic of Serbia: Selected Economic Indicators












Output, prices and labor market








Real GDP

3.8 -3.5 1.0 1.6 -1.7 2.0


Real domestic demand (absorption)

5.3 -10.6 -1.8 3.8 -1.6 0.6


Consumer prices (average)

12.4 8.1 6.2 11.1 7.3 8.4


Consumer prices (end of period)

8.6 6.6 10.3 7.0 12.2 4.9


GDP deflator

12.6 5.9 4.9 9.6 7.4 8.4

Import prices (dinars, average)

13.7 0.8 17.2 4.8 12.1 2.5


Unemployment rate (in percent)

14.7 17.4 20.0 24.4 23.1 23.0


Nominal GDP (in billions of dinars)

2,661 2,720 2,882 3,209 3,386 3,745









General government finances







42.8 42.2 42.5 40.6 41.7 40.0



45.5 46.8 47.4 45.7 49.2 48.3



40.9 42.4 42.6 41.2 44.9 44.0


Capital and net lending

4.6 4.3 4.9 4.5 4.3 4.3


Fiscal balance (cash basis)

-2.7 -4.6 -4.9 -5.1 -7.6 -8.3


Primary fiscal balance (cash basis)

-2.0 -3.8 -3.7 -3.7 -5.6 -5.7


Structural fiscal balance 1/

-4.1 -4.1 -4.4 -5.3 -5.8 -7.9


Gross debt

33.4 38.1 46.5 49.5 61.8 67.5









Monetary sector








Money (M1)

-3.9 8.8 -2.2 16.8 3.8 5.4


Broad money (M2)

9.6 22.0 13.7 10.4 9.2 9.3


Domestic credit to non-government 2/

23.3 10.3 18.4 8.1 3.2 -6.0









Interest rates (dinar)








NBS key policy rate 3/

17.8 9.5 11.5 9.8 10.1 11.7

Interest rate on new FX and FX-indexed loans 3/

8.5 8.2 8.0 8.4








Balance of payments








Current account balance

-21.7 -6.6 -6.8 -9.1 -10.5 -8.7


Exports of goods

22.8 20.7 26.6 26.8 29.4 30.3


Imports of goods

-49.0 -37.8 -43.0 -43.8 -47.6 -45.9


Trade of goods balance

-26.2 -17.1 -16.5 -16.9 -18.2 -15.6


Capital and financial account balance

16.9 11.3 2.0 14.1 6.5 11.0


External debt (Percent of GDP)

64.9 77.8 85.4 76.7 85.8 83.1


of which: Private external debt

44.8 50.9 52.8 42.5 45.2 41.1


Gross official reserves (in billions of euro)

8.2 10.6 10.0 12.1 10.9 11.0


(In months of prospective imports)

7.3 8.7 7.2 8.4 7.1 6.8


(Percent of short-term debt)

166.0 221.5 199.8 328.4 270.9 234.0


(in percent of broad money, M2)

74.8 86.1 78.6 85.2 76.8 73.6


Exchange rate (dinar/euro, period average)

81.9 94.1 103.5 102.0 113.0 113.0


REER (annual average change, in percent;








+ indicates appreciation)

6.5 -6.6 -8.0 9.3 -7.4 6.3

Sources: Serbian authorities; and IMF staff estimates and projections

1/ Fiscal balance adjusted for the automatic effects of the output gap both on revenue and spending.

2/ At constant exchange rates.

3/ Latest actual data.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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