IMF Staff Completes Review Mission to Serbia

IMF News, November 1, 2016

Source details

Mission leader: James Roaf.
Mission dates: October 20 – November 1, 2016.
Purpose: Sixth review under Serbia’s precautionary Stand-By Arrangement (SBA) with the IMF.
Staff-level agreement reached with the authorities on policies needed to complete the sixth review; completion subject to policy actions, and approval by IMF Management and Executive Board.
Consideration by the Executive Board is tentatively scheduled for mid-December.
Financing under the SBA:
- Additional availability: SDR 54.57 million (€68.53 million).
- Total funds available under the SBA after the review: SDR 662.58 million (€832.14 million).
- The Serbian authorities have indicated that they do not intend to draw on the resources available under the arrangement.

Real GDP growth projections:
- 2016: 2.7 percent.
- 2017: 3 percent.
Inflation:
- Mission supports the intention of the National Bank of Serbia to lower the inflation target to 3 percent +/-1.5 percent.
- Current monetary policy described as a cautiously accommodative stance, consistent with the new target.
- Inflation expected to gradually increase through 2017.
Labor market: labor market indicators show noticeable improvement.
Private sector wage growth: accelerating, while inflation remains subdued.

Robust fiscal performance continues, driven by stronger than expected revenues.
Expenditures stayed within the program targets.
General government deficit projection for 2016: 2.1 percent of GDP.
Public debt: projected to end the year below 74 percent of GDP; falling a year ahead of schedule.
Use of fiscal space in 2016: agreed plan to cover some one-off expenditures, including a bonus for pensioners and the resolution of historical arrears of state-owned enterprises.

Mission reached agreement with the authorities on key parameters of the 2017 budget.
Priority: continue gradual fiscal consolidation and ensure public debt is put on a firm downward trend.
Agreed measures: a targeted public wage and pensions increase within the consolidation framework.
Fiscal deficit expected in 2017: 1.7 percent of GDP.
Overall pensions and wage bills: expected to continue to decline as shares of GDP, converging to more sustainable levels over the medium-term.

Need for decisive actions to end the drain on public resources by large utility companies and other state-owned enterprises.
Program requirement: clear plans for the resolution or restructuring of RTB Bor, Resavica, Petrohemija, Azotara and MSK.
Policy recommendation: discontinue the practice of financing weak public entities and companies through arrears to Srbijagas and EPS.
Public sector reforms: must be accelerated to deliver better public services while contributing to fiscal consolidation.
Education system: reforms of the education system are explicitly noted as well overdue.

NPL resolution strategy is yielding results, but more decisive action is needed to reduce bad loans, including in state-owned banks.
Support for the National Bank of Serbia (NBS) efforts to enhance its macroprudential policy framework in the context of the implementation of Basel III.
Continued efforts recommended to reform state-owned financial institutions.

IMF mission described discussions with the government led by Prime Minister Aleksandar Vučić as constructive.
The mission team expressed gratitude for the authorities’ hospitality and close cooperation.

Press Release No. 16/476, November 1, 2016.