Statement at the Conclusion of an IMF Staff Visit to SerbiaPress Release No. 13/395
October 8, 2013
A staff team from the International Monetary Fund (IMF), headed by Zuzana Murgasova, visited Belgrade during October 1-7 to discuss recent economic developments and the authorities’ policy agenda for 2014 and the medium term. At the end of the visit, Ms. Murgasova issued the following statement:
“The economic situation remains fragile. A modest recovery of 1.5 percent—somewhat lower than the projection in the October 2013 World Economic Outlook—is expected this year, supported by a rebound of agriculture and strong automobile and other exports. This will help reduce the external current account deficit, which will nevertheless remain sizeable. However, weak private credit and a contraction of domestic demand have dampened the economic recovery. The general government deficit (including public bank resolution costs, clearance of arrears, and payments for called guarantees) is expected to reach around 7.5 percent of GDP this year. Inflation is set to decelerate to the National Bank of Serbia’s (NBS) target tolerance band soon, but the unemployment rate at around 25 percent remains a major social concern.
“Ambitious fiscal consolidation and structural reforms to reverse the sharp rise in public debt and foster sustainable growth are urgent policy priorities, as recognized by the authorities. The government’s fiscal consolidation plans outlined in the draft medium-term strategy—currently under discussion—identify a set of measures that aim to put public finances on a sustainable footing. In particular, efforts to contain the public sector wage bill and subsidies, as well as measures to strengthen revenue collection, are appropriate. Full implementation of these measures starting from 2014 would be an important step in the right direction and a signal of the authorities’ resolve to tackle the economic challenges. At the same time, additional comprehensive and durable consolidation measures need to be identified and implemented in order to stabilize and reverse the increase in the public debt-to-GDP ratio over the next few years. In this regard, availability of concessional financing should be fully used to lower debt service costs rather than weaken the pace of fiscal consolidation, in order not to compromise public debt sustainability.
“Wide-ranging structural reforms should support fiscal adjustment. Steps to improve the business climate and reduce the state’s footprint in the economy are needed to provide impetus to investment, economic diversification, and sustainable private sector growth in order to create jobs. In this regard, the staff team welcomes the start of long-delayed restructuring of socially-owned enterprises. Government’s plans to reform the labor markets and improve the business climate are also encouraging. Timely legislative changes and steadfast implementation of comprehensive reforms in these areas will be essential. Other structural reforms of pension system, public administration, health, and education should also start without further delay.
“The mission welcomes the continued commitment to the inflation-targeting framework by the NBS. Monetary policy easing has been appropriately put on hold in light of renewed financial market volatility and could resume once fiscal consolidation is firmly in place and market confidence has strengthened.”