Statement by the IMF Staff Mission to Serbia

Press Release No.10/416
November 5, 2010

An International Monetary Fund (IMF) mission led by Albert Jaeger visited Belgrade during October 21–November 4 to hold discussion with the authorities on the 6th review under the Stand-By Arrangement (SBA). At the conclusion of the mission Mr. Jaeger made the following statement today in Belgrade:

"There are encouraging signs that the export-based recovery of the Serbian economy is continuing. Output growth is expected to reach at least 1½ percent this year and 3 percent next year. However, inflation picked up in recent months, owing to volatile food prices and pass-through to prices from exchange rate depreciation. Inflation is projected to exceed temporarily the upper bound of the end-2010 tolerance band (6±2 percent), returning within the band (4½±1½ percent) toward end-2011.

"Performance under Serbia’s SBA has been broadly on track. All end-September 2010 performance criteria were observed. It was also agreed that the pension law would be re-submitted to parliament over the next few weeks, without material changes to the version that had been submitted to Parliament in June 2010.

"The discussions mostly focused on fiscal policy. On the 2010 budget, there was agreement between the authorities and the mission on a supplementary budget consistent with the agreed target of 4¾ percent of GDP. Attaining this target would, nevertheless, require prudent execution of expenditure in the remainder of the year, in a transparent manner and in line with agreed allocations.

"Regarding the 2011 budget, the discussions focused on the measures needed to reach the agreed deficit target of about 4 percent of GDP. This target is consistent with the recently adopted fiscal balance rule in the revised Budget System Law, and it was agreed that a tighter fiscal policy was needed to help reduce external pressures on the exchange rate and contain inflation expectations. While the discussions on the 2011 budget advanced significantly during the mission, they could not be finalized during the mission’s stay.

"Monetary policy will continue to focus on inflation, which has surfaced as a key policy concern. The mission also discussed other issues, including the envisaged phasing out of the credit support programs, improving the framework for corporate debt restructuring, and accelerating structural reforms to achieve faster productivity growth and create well-paid jobs.

"Staff and the authorities agreed to continue the dialogue with a view to reaching a staff-level agreement soon on completing the 6th review under the SBA."



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