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IMF Staff Completes Final Review Mission to Serbia

November 7, 2017

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.

An International Monetary Fund (IMF) mission, led by James Roaf, visited Belgrade during October 26 – November 7, 2017, to hold discussions on the eighth and final review under Serbia’s precautionary Stand-By Arrangement (SBA) with the IMF. At the conclusion of the visit, Mr. Roaf issued the following statement:

“The IMF mission held constructive discussions with the authorities and reached staff-level agreement on policies needed to complete the eighth review under the SBA. All end-September 2017 performance criteria have been met, most with significant margins, and implementation of structural benchmarks has continued, although with delays in some areas. The agreement is subject to completion of key structural, fiscal, and financial policy actions, and approval by IMF Management and Executive Board. Consideration by the Board is tentatively scheduled for late December.

“The completion of the review will make an additional SDR 99.14 million (€119.4 million) available to Serbia under the SBA, bringing the total funds available to SDR 871.8 million (€1,05 billion). The Serbian authorities have indicated that they do not intend to draw on the resources available under the arrangement. Following this review, the program will conclude on February 23, 2018.

“Strong economic performance continues. Notwithstanding a temporary slowdown caused mainly by the drought and electricity disruptions, underlying economic activity remains robust, supported by strong growth of exports, private consumption and investment. Labor market conditions have continued to improve, with new private sector jobs being created and a significant fall in unemployment. We project real GDP growth of 2 percent in 2017 and 3.5 percent in 2018. Inflation is projected to remain close to the center of the NBS target range. The monetary policy stance is appropriate given the low inflation outlook and exchange rate developments.

“Significant fiscal over-performance has continued, driven by strong revenues, a lower interest rate bill, and under-execution of capital expenditures. The general government balance for this year is projected to be around zero, compared to the original budget deficit target of 1.7 percent of GDP. The public debt-to-GDP ratio fell to 65.4 percent at end-September, more than 10 percent of GDP below the 2015 peak. In view of these results, the government plans to use part of the fiscal space in 2017 to grant a bonus for pensioners as well as some wage bonuses.

“The mission agreed with the authorities on the key parameters of the 2018 budget. The priority is to preserve hard-won fiscal achievements, while supporting growth-enhancing initiatives, such as increasing public investment and reducing the tax burden on low-income workers. Along with the agreed wage and pension increases, the 2018 fiscal deficit is projected at 0.7 percent of GDP – a level consistent with fiscal sustainability and further public debt reduction.

“Remaining structural weaknesses in the public sector should be tackled by fully implementing the reform agenda. The financing of weak public entities through arrears to Srbijagas and electricity company EPS has been significantly reduced, reforms in railways have continued, and pharmaceutical company Galenika has been privatized. However, resolution of some other problem enterprises, especially in the petrochemical and mining sectors, is still pending. Public administration reforms should also be accelerated to improve the quality of public services and reduce fiscal risks. The passage of secondary legislation for the new public wage system will be a key milestone in this regard.

“Stronger efforts to improve the business environment are needed to create conditions for faster private sector growth and convergence to EU income levels. Recent improvements in business survey rankings are welcome. But substantial reform efforts are still needed to foster competition and reduce regulatory and administrative burden on enterprises, including by modernizing tax administration and increasing transparency and predictability of public fees and charges.

“In the financial sector, the resolution strategy for non-performing loans has continued to yield very good results, but more decisive action is needed in state-owned banks. Bank lending is increasing, supporting economic growth. Significant progress has been made to upgrade bank supervision and align regulations with EU standards, helping ensure financial stability.

“The mission is grateful for the authorities’ hospitality and close cooperation.”

IMF Communications Department

PRESS OFFICER: Wiktor Krzyzanowski

Phone: +1 202 623-7100Email: MEDIA@IMF.org