Press Release No. 11/54

Press Release: IMF Reaches Staff-Level Agreement on Seventh and Final Review of SBA with Serbia

February 22, 2011

An International Monetary Fund (IMF) mission, led by Albert Jaeger, visited Serbia during February 10–21, 2011, to conduct discussions on the seventh and final review of Serbia’s economic program supported by a Stand-By Arrangement (SBA) with the IMF.

At the conclusion of the mission, Mr. Jaeger issued the following statement in Belgrade:

“The IMF mission and the Serbian authorities have reached agreement, subject to approval by the IMF Management and Executive Board, on completing the seventh and final review of the SBA. We expect the request to be considered by the IMF Board in late March. Completion of the review will enable Serbia to draw SDR 320 million (about €365 million) to support its external reserve position. 

“The program is performing well. All end-December 2010 performance criteria were observed, with the 2010 fiscal deficit target having been met by a sizable margin. As previously expected, December inflation exceeded the upper program limit by 2¼ percentage points.

“GDP growth has remained on track, but the transition from consumption-led to more export-led growth is proving very painful. Growth is estimated to have reached 1¾ percent in 2010, and is projected at 3 percent in 2011. Smaller firms are going through a particularly difficult adjustment, and employment in both the formal and informal segments of the private sector has contracted sharply. The 2010 current account deficit, at 7 percent of GDP, is estimated to have been better than expected, mainly due to higher remittances, but also a narrower trade deficit. Foreign banks have broadly maintained exposure to Serbia.

“Inflation remained high during recent months, reflecting mainly global and local food price shocks, but also past exchange rate depreciation. The NBS’ response was appropriately forceful and consistent with bringing inflation back to the targeted band at the turn of 2011/12.

“The mission’s discussions focused on this year’s fiscal policy, against the backdrop of recent pressures for large and sustained public wage increases that could put fiscal and price stability at risk. The 2011 budget already envisions a substantial increase in resources to protect the most vulnerable. In addition, it was agreed that, if consolidated central government revenues are reasonably assured to exceed budget targets, part of the higher revenues could be used later in the year for limited, one-off, and targeted payments to lower-income wage and pension recipients.

“As the present SBA comes to an end, many of the key objectives set at the outset of the program have been achieved. But it is essential to build on these achievements by persevering with disciplined fiscal policies, embarking on serious public sector reforms, including the restructuring of public enterprises, and providing the private sector with a more stable and predictable business environment conducive to sustained investment and job creation.”