IMF Completes Sixth Review Under Stand-By Arrangement with Serbia and Approves €373 Million Disbursement

Press Release No. 10/513
December 22, 2010

The Executive Board of the International Monetary Fund (IMF) today completed the sixth review of Serbia’s economic performance under the program supported by a Stand-By Arrangement (SBA). The completion of the review enables the immediate disbursement of SDR 319.595 million (about €373 million, or US$489 million). Drawing the full amount would bring total disbursements under the SBA to SDR 1.59 billion (about €1.9 billion, or US$2.4 billion).

Serbia’s initial 15-month SBA was approved on January 16, 2009, in the amount of SDR 350.8 million (about €409.5 million, or US$536.9 million). On May 15, 2009, the arrangement was extended by one year and augmented to SDR 2.6 billion (about €3 billion, or US$4 billion) to support the government's economic program amid a sharper than expected impact from the global financial crisis (see Press Release No. 09/169).

Following the Executive Board’s discussion on Serbia, Mr. John Lipsky, First Deputy Managing Director and Acting Chair, said:

“The Serbian authorities’ implementation of the IMF-supported program has been broadly satisfactory, and an export-led recovery has gained momentum. Continued vigilance will be critical as macroeconomic stability risks have increased, including from a surge in inflation, continued high trade deficits, and potential adverse spillovers from regional developments.

“The authorities have appropriately tightened monetary policy in line with the inflation-targeting framework. With inflation risks remaining tilted on the upside, the authorities should continue to use all tools available to contain inflation expectations and bring inflation back within the National Bank of Serbia’s tolerance band.

“Fiscal policy has remained in line with the program, and the 2011 budget targets a deficit consistent with the new fiscal responsibility framework. Determined efforts will be needed to achieve the 2011 fiscal targets, in view of growing pressures for higher spending. It will be important to pursue structural fiscal reforms. The current pension reform is a step in the right direction. Further reforms will be needed in future to ensure the sustainability of the pension system.

“Banking sector reforms have been commendable, and Serbia’s banking system is well buffered to absorb the deterioration in corporate balance sheets. Continued vigilance is needed given elevated external risks. Swift adoption of the legal framework for the out-of-court debt restructuring mechanism will be important.

“Accelerating structural reform will be critical to rebalancing the Serbian economy toward the tradable sector. In particular, efforts in deregulation and the restructuring of public utilities should be stepped up”.



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