IMF Mission to Serbia Reaches Staff-Level Agreement on Second Review of Stand-By Arrangement

Press Release No. 09/387
November 4, 2009

An International Monetary Fund (IMF) mission, led by Albert Jaeger, held discussions with the Serbian authorities during October 22-November 3, 2009 as part of the second review of the country’s Stand-By Arrangement (SBA). At the conclusion of the visit, Mr. Jaeger made the following statement:

“An IMF staff mission and the Serbian authorities have reached agreement, subject to approval by the IMF Management and Executive Board, on the completion of the second review of the SBA with Serbia. In the next few weeks the authorities intend to implement several agreed measures, including the submission of the 2010 budget to Parliament. Assuming adoption of these measures and approval by IMF Management, the second review could be considered by the Executive Board in late December. Completion will allow Serbia to draw an amount compatible with its external financing need.

“The SBA has helped Serbia achieve a number of goals. Financial tensions have eased, the output decline has been contained, and inflation is falling. Foreign banks have broadly maintained their exposure to Serbia and the large current account deficit is shrinking faster than anticipated. But weak domestic demand has strained the fiscal position and exacerbated corporate payment problems. And due to Serbia’s low export base and its undersized private sector, it may receive limited benefits from the incipient global recovery. We now expect GDP to fall by 3 percent in 2009, with a still-modest recovery of 1½ percent in 2010.

“Most of the targets under the program have been met, with the exception of the fiscal deficit, which was exceeded due to revenue shortfalls. Agreement was reached on corrective fiscal measures. The fiscal deficit target for 2009 would be raised to 4½ percent of GDP, and an objective of 4 percent of GDP has been agreed for 2010. The latter goal will require maintenance of most of the fiscal measures put in place in 2009. This would free some room for public capital spending and net lending, while well-targeted social spending would be protected. The authorities have committed to implement several structural spending reforms, including in the areas of public employment and pensions, over the next few months.

“Monetary policy will remain focused on inflation. Continuation of the latest inflation developments would provide room for cautious easing, and the existing managed float regime will be maintained.”



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