IMF Reaches Staff-Level Agreement with Serbia on Third Review of Stand-By Arrangement

Press Release No. 10/57
February 23, 2010

An International Monetary Fund (IMF) mission, led by Albert Jaeger, held discussions with the Serbian authorities during February 9-23, 2010 as part of the third review of the country’s Stand-By Arrangement (SBA) and the 2010 Article IV consultation. At the conclusion of the visit, Mr. Jaeger made the following statement in Belgrade:

“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 third review of the SBA. We expect the request to be considered by the IMF’s Board in late March. Completion will allow Serbia to draw €350 million to support its external reserve position.

“The program is performing well: all key quantitative targets have been met, most of them with a considerable margin, including the target on the fiscal deficit, which was 4¼ percent of GDP in 2009. Progress is also being made in the structural areas, such as the reform of the pension system, the design of the fiscal responsibility legislation, and the corporate debt collection and restructuring framework. Encouragingly, with the global economy stabilizing and foreign banks remaining strongly committed to Serbia, the economy is starting to recover. We project a modest GDP recovery in 2010 and 2011 of 2 and 3 percent respectively. Inflation is falling broadly as targeted.

“Despite these welcome trends, economic challenges remain substantial. Unemployment is high and rising, output and investment remain weak. This is insufficient for a perceptible rise in living standards. Recent events show that Serbia cannot afford a return to the pre-crisis model of growth based on high consumption and low domestic savings and low exports. The key challenge is to undertake growth-oriented structural reforms.

“The public sector should reduce its high claim on resources while taking the lead in realizing the needed economic transformation. Thus, the 2010 budget should be tightly executed in line with the deficit target of 4 percent of GDP, focusing on expenditure restraint. This should free the room for essential public investment, with well-targeted social spending being protected. Further steps to anchor this strategy are expected to be specified in the discussions of the next review.

“The mission also discussed scope for further monetary easing, plans for streamlining reserve requirements, and the exposure floors for foreign banks under the Bank Coordination Initiative. Additionally, it reviewed opportunities for reducing Serbia’s high level of euroization.”



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