IMF Executive Board Completes Third Review Under the Policy Coordination Instrument for the Republic of Serbia
December 18, 2019
- The implementation of Serbia’s economic program is on track.
- The 2020 budget keeps public debt on a declining path, while creating space for capital investments and lower labor taxation.
- Structural reforms are advancing, but with delays in some areas.
Serbia is the second IMF member country to request a PCI. The PCI was approved on July 18, 2018 (see Press Release No. 18/299 ) and aims to maintain macroeconomic and financial stability, while advancing an ambitious reform agenda to foster rapid growth, job creation and improved living standards.
Solid economic performance continues, supported by consumption, public investment, exports and record-high FDI inflows. Economic growth is projected at 3.5 percent in 2019 and 4 percent in 2020, with negative contributions from the external environment offset by strong domestic demand. Labor market conditions continue to firm and wages are increasing. Program implementation is on track and quantitative targets for end-September 2019 were met. Inflation remains close to the lower limit of the National Bank of Serbia’s (NBS) inflation band and the NBS has implemented three rate cuts since July. Fiscal performance remains sound, public debt continues to decline, while progress has been made in reforming the tax administration and strengthening public investment management frameworks. Robust FDI inflows have led to dinar appreciation pressures for most of 2019, and the NBS has been a net purchaser of foreign exchange.
The 2020 budget targets a deficit of 0.5 percent of GDP, keeping public debt on a declining path while creating some fiscal space for capital investments and a further lowering of the labor tax wedge. The financial sector indicators appear sound, but developing capital markets and continuing to promote dinarization will be important to further enhance financial stability and support medium-term growth. The authorities remain committed to advancing structural reforms in 2020, needed to boost Serbia’s potential growth and improve the private investment climate. These include implementation of delayed reforms of the public wage system and public employment framework, introduction of new fiscal rules for 2021, as well as measures to strengthen SOE management and corporate governance.
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Republic of Serbia: Selected Economic Indicators, 2016-2021 |
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2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
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CR 19/238 |
Proj. |
CR 19/238 |
Proj. |
Proj. |
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|
(Percent change, unless otherwise indicated) |
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|
Real sector 1/ |
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|
Real GDP |
3.3 |
2.0 |
4.4 |
3.5 |
3.5 |
4.0 |
4.0 |
4.0 |
|
Real domestic demand (absorption) |
1.4 |
3.9 |
6.5 |
4.4 |
4.6 |
3.8 |
4.0 |
3.6 |
|
Consumer prices (average) |
1.1 |
3.1 |
2.0 |
2.2 |
1.9 |
1.9 |
2.0 |
2.2 |
|
GDP deflator |
1.5 |
3.0 |
2.1 |
3.3 |
3.3 |
3.5 |
3.4 |
3.4 |
|
Unemployment rate (in percent) 2/ |
15.9 |
14.1 |
13.3 |
… |
… |
… |
… |
… |
|
Nominal GDP (in billions of dinars) |
4,521 |
4,754 |
5,069 |
5,408 |
5,417 |
5,819 |
5,827 |
6,264 |
|
(Percent of GDP) |
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|
General government finances |
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Revenue 3/ |
40.8 |
41.5 |
41.5 |
40.8 |
41.4 |
40.1 |
40.2 |
39.8 |
|
Expenditure 3/ |
41.9 |
40.4 |
40.9 |
41.3 |
42.0 |
40.7 |
40.7 |
40.3 |
|
Current 3/ |
37.9 |
36.7 |
36.4 |
36.7 |
37.2 |
36.1 |
35.9 |
35.6 |
|
Capital and net lending |
3.2 |
3.1 |
4.1 |
4.3 |
4.5 |
4.4 |
4.7 |
4.5 |
|
Amortization of called guarantees |
0.9 |
0.6 |
0.4 |
0.2 |
0.2 |
0.2 |
0.1 |
0.2 |
|
Fiscal balance 4/ |
-1.2 |
1.1 |
0.6 |
-0.5 |
-0.5 |
-0.5 |
-0.5 |
-0.5 |
|
Primary fiscal balance (cash basis) |
1.7 |
3.6 |
2.8 |
1.6 |
1.5 |
1.4 |
1.5 |
1.5 |
|
Structural primary fiscal balance 5/ |
1.7 |
3.7 |
2.8 |
1.9 |
1.8 |
1.8 |
1.6 |
1.6 |
|
Gross debt |
68.9 |
58.7 |
54.5 |
52.3 |
52.7 |
49.3 |
51.4 |
47.8 |
|
(End of period 12-month change, percent) |
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Monetary sector |
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Money (M1) |
20.3 |
9.7 |
20.1 |
10.7 |
10.7 |
9.8 |
9.7 |
8.6 |
|
Broad money (M2) |
9.8 |
3.3 |
15.0 |
8.8 |
8.5 |
7.5 |
7.4 |
6.2 |
|
Domestic credit to non-government 6/ |
1.8 |
4.4 |
10.1 |
7.1 |
7.2 |
5.6 |
7.3 |
6.9 |
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(Period average, percent) |
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Interest rates (dinar) |
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|
NBS key policy rate |
3.5 |
3.9 |
3.1 |
… |
… |
… |
… |
… |
|
Interest rate on new FX and FX-indexed loans |
3.1 |
3.1 |
2.8 |
… |
… |
… |
… |
… |
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(Percent of GDP, unless otherwise indicated) |
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Balance of payments |
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|
Current account balance |
-2.9 |
-5.2 |
-5.2 |
-5.6 |
-5.9 |
-5.1 |
-5.3 |
-5.2 |
|
Exports of goods |
34.9 |
35.9 |
35.6 |
36.0 |
36.2 |
36.8 |
36.7 |
37.7 |
|
Imports of goods |
-43.4 |
-46.1 |
-47.8 |
-48.8 |
-49.2 |
-49.2 |
-49.3 |
-49.7 |
|
Trade of goods balance |
-8.5 |
-10.2 |
-12.2 |
-12.8 |
-13.0 |
-12.4 |
-12.6 |
-12.0 |
|
Capital and financial account balance |
0.6 |
4.8 |
6.5 |
6.6 |
8.7 |
6.7 |
6.7 |
5.7 |
|
External debt (percent of GDP) |
75.7 |
67.2 |
61.6 |
58.3 |
58.4 |
55.1 |
54.7 |
51.1 |
|
of which: Private external debt |
29.4 |
29.8 |
29.2 |
27.6 |
27.5 |
25.9 |
25.7 |
24.3 |
|
Gross official reserves (in billions of euro) |
10.2 |
10.0 |
11.3 |
11.8 |
12.5 |
12.5 |
13.2 |
13.5 |
|
(in months of prospective imports) |
5.5 |
4.7 |
4.8 |
4.7 |
4.9 |
4.6 |
4.8 |
4.5 |
|
(percent of short-term debt) |
412.5 |
262.3 |
163.7 |
167.7 |
191.5 |
178.8 |
201.7 |
205.7 |
|
(percent of broad money, M2) |
58.7 |
53.2 |
52.2 |
51.1 |
54.2 |
50.7 |
53.1 |
50.4 |
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(percent of risk-weighted metric) |
171.5 |
162.1 |
158.4 |
160.4 |
171.4 |
162.4 |
170.7 |
172.6 |
|
Exchange rate (dinar/euro, period average) |
123.1 |
121.4 |
118.3 |
… |
… |
… |
… |
… |
|
REER (annual average change, in percent; |
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|
+ indicates appreciation) |
-1.0 |
2.9 |
2.8 |
… |
… |
… |
… |
… |
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Social indicators |
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Per capita GDP (in US$) |
5,756 |
6,284 |
7,246 |
7,503 |
7,445 |
8,174 |
8,086 |
8,787 |
|
Real GDP per capita (percent change) |
3.9 |
2.6 |
5.0 |
… |
3.9 |
… |
4.4 |
4.4 |
|
Population (in million) |
7.1 |
7.0 |
7.0 |
7.0 |
7.0 |
6.9 |
6.9 |
6.9 |
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Sources: Serbian authorities; and IMF staff estimates and projections. |
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1/ SORS released revised national accounts in November 2018. |
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2/ Unemployment rate for working age population (15-64). |
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3/ Includes employer contributions. |
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4/ Includes amortization of called guarantees. |
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5/ Primary fiscal balance adjusted for the automatic effects of the output gap both on revenue and spending as well as one-offs. |
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6/ At constant exchange rates. |
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[1] The PCI is available to all IMF members that do not need Fund financial resources at the time of approval. It is designed for countries seeking to demonstrate commitment to a reform agenda or to unlock and coordinate financing from other official creditors or private investors.
[2] The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions
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