IMF Executive Board Concludes 2017 Article IV Consultation with Serbia
IMF News, September 6, 2017
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- Published: September 6, 2017
Recent macroeconomic performance and outlook
- Serbia’s economy has strengthened impressively since the adoption of the economic program supported by the Stand-By Arrangement (SBA).
- Two years after program start (early 2015), macroeconomic performance showed a major turnaround.
- Economic growth is expected to reach 3 percent in 2017.
- The fiscal deficit should narrow to 1.1 percent of GDP—the lowest level since 2005—and public debt is heading down faster than projected.
- The larger than planned fiscal tightening has been associated with increased growth, reflecting confidence from addressing public debt sustainability concerns.
- Unemployment is falling sharply, banks’ non-performing loans are declining, and inflation has been maintained at low levels.
- Continued reform efforts are needed to address remaining vulnerabilities and structural weaknesses.
Structural reforms, remaining weaknesses, and priorities
- Serbia has pursued a comprehensive reform agenda covering public enterprises and State Owned Enterprises (SOEs), public administration, the financial sector, and the business climate.
- Overall progress has been good, but there have been delays in some areas—notably in reforms of public administration, public services, and SOEs.
- The economy remains overburdened by a large and inefficient public sector, with too little reliance on the productive private sector.
- Labor market challenges include low participation rates (especially of women) and a high degree of informality.
- Future growth depends on further improving the environment for private sector investment and employment growth.
- Areas needing further improvement: streamlining and modernizing tax administration, increasing transparency and predictability of public fees and charges, and ensuring a more efficient and independent judicial system.
Executive Board assessment and advice
- Executive Directors agreed with the thrust of the staff appraisal and commended authorities for significant economic improvement and achieving key macro targets under the Fund-supported program.
- Directors emphasized that significant structural challenges and downside risks remain and urged authorities to consolidate gains by building stronger institutions and advancing the structural reform agenda to improve economic efficiency and bolster private sector-led growth—also important for EU accession.
- Directors commended strong revenue performance and noted it allowed for a smaller than envisaged contraction of expenditure.
- They stressed containing non-discretionary current spending remains an important priority to keep debt on a declining path and to create fiscal space for capital spending and potential targeted tax reductions.
- Reforms facing delays—modernizing education, strengthening tax administration, restructuring state-owned enterprises and utilities—should be carried out expeditiously.
- Monetary policy was judged successful in keeping inflation under firm control.
- Directors noted that broad exchange rate stability has reinforced confidence and helped reduce euroization, but highlighted the need to allow for day-to-day exchange rate flexibility consistent with the inflation-targeting regime.
- Financial sector reforms under the program have strengthened sector resilience and support future growth.
- Efforts to reduce NPLs need to continue, and reforms of state-owned financial institutions need to be accelerated.
- Directors recognized improvements in the business environment but considered impediments to private investment and growth remain.
- They stressed strengthening judicial processes (especially judicial independence and reducing delays) and encouraged measures to strengthen labor force participation, particularly among women.
Serbia: Selected Economic and Social Indicators (2014-2018)
- Real GDP (percent change)
- 2014: -1.8
- 2015: 0.8
- 2016: 2.8
- 2017: 3.0
- 2018 (Proj.): 3.5
- Real domestic demand (absorption) (percent change)
- 2014: -1.1
- 2015: 1.4
- 2016: 1.1
- 2017: 2.2
- Consumer prices (average)
- 2014: 2.1
- 2015: 3.4
- GDP deflator
- 2014: 2.7
- 2015: 2.5
- Unemployment rate (in percent) 1/
- 2014: 19.9
- 2015: 18.2
- 2016: 15.9
- 2017: …
- Nominal GDP (in billions of dinars)
- 2014: 3,908
- 2015: 4,043
- 2016: 4,200
- 2017: 4,434
- 2018 (Proj.): 4,719
- General government finances (percent of GDP)
- Revenue
- 2014: 39.7
- 2015: 40.4
- 2016: 42.4
- 2017: 41.8
- 2018: 41.2
- Expenditure
- 2014: 46.3
- 2015: 44.0
- 2016: 43.7
- 2017: 42.9
- 2018: 42.0
- Fiscal balance 2/
- 2014: -6.6
- 2015: -3.7
- 2016: -1.4
- 2017: -0.8
- Primary fiscal balance (cash basis)
- 2014: -0.5
- 2015: 1.8
- 2016: 2.0
- Structural primary fiscal balance 3/
- 2014: -2.6
- 2015: 0.0
- Gross debt
- 2014: 71.9
- 2015: 76.0
- 2016: 74.1
- 2017: 70.9
- 2018: 67.9
- Monetary sector (end of period 12-month change, percent)
- Money (M1)
- 2014: 9.7
- 2015: 17.0
- 2016: 20.3
- 2017: 11.8
- 2018: 10.7
- Broad money (M2)
- 2014: 8.3
- 2015: 7.2
- 2016: 9.8
- 2017: 6.9
- 2018: 6.8
- Domestic credit to non-government 4/
- 2014: 7.0
- Interest rates (dinar) (period average, percent)
- NBS key policy rate
- 2014: 9.0
- 2015: 6.1
- 2016: 4.4
- Interest rate on new FX and FX-indexed loans
- 2014: 6.0
- 2015: 5.0
- 2016: 4.1
- Balance of payments (percent of GDP, unless otherwise indicated)
- Current account balance
- 2014: -6.0
- 2015: -4.7
- 2016: -4.0
- 2017: -3.9
- Exports of goods
- 2014: 31.9
- 2015: 33.9
- 2016: 37.3
- 2017: 39.8
- 2018: 41.1
- Imports of goods
- 2014: -44.3
- 2015: -45.8
- 2016: -47.5
- 2017: -49.9
- 2018: -50.7
- Capital and financial account balance
- 2014: 4.5
- External debt
- 2014: 83.1
- 2015: 84.0
- 2016: 81.8
- 2017: 76.1
- 2018: 71.3
- Gross official reserves (in billions of euro)
- 2014: 9.9
- 2015: 10.4
- 2016: 10.2
- 2017: 10.0
- 2018: 10.1
- Exchange rate (dinar/euro, period average)
- 2014: 117.2
- 2015: 120.8
- 2016: 123.4
- REER (annual average change, in percent; + = apprec.)
- 2014: -2.0
- 2015: -1.6
- 2016: 1.7
- 2017: 1.5
- Social indicators
- Per capita GDP (in US$)
- 2014: 6,199
- 2015: 5,244
- 2016: 5,376
- 2017: 5,630
- 2018: 6,085
- Population (in million)
- 2014: 7.1
Policy recommendations and next steps
- Consolidate fiscal gains by:
- Containing non-discretionary current spending to keep debt on a declining path.
- Creating fiscal space for needed capital spending and potential targeted tax reductions.
- Accelerate delayed structural reforms, including:
- Modernizing education.
- Strengthening tax administration.
- Restructuring state-owned enterprises and utilities.
- Reforming state-owned financial institutions and continuing NPL reduction efforts.
- Maintain monetary policy focus on inflation control while allowing day-to-day exchange rate flexibility consistent with the inflation-targeting regime.
- Strengthen judicial independence and reduce delays in court decisions to improve the business environment.
- Enhance labor force participation, particularly among women, and reduce informality to support private sector-led growth.
IMF Press Release No. 17/339 — Executive Board conclusion of the 2017 Article IV consultation with Serbia
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