IMF Policy Support Program Helps Serbia Advance Reforms and Cope with COVID-19

IMF News, January 8, 2021

Source details

Canonical URL: IMF Policy Support Program Helps Serbia Advance Reforms and Cope with COVID-19

Serbia’s economic reform program supported by the IMF since July 2018 will come to a close at the end of January.
The Policy Coordination Instrument (PCI) provided policy advice but no IMF financing.
The PCI’s key goals: foster inclusive growth, maintain financial stability, and advance structural reforms, including sustaining earlier fiscal improvement.

The PCI was broadly on track when COVID-19 hit, but objectives were adjusted to reflect pandemic-related challenges.
Last spring, the PCI’s focus shifted to supporting the economy through the crisis and managing risks.
Progress and delays:
- Achieved: modernizing tax administration; strengthening public investment frameworks; monitoring and managing fiscal risks.
- Delayed or not implemented: reforms to strengthen governance of state-owned enterprises; development of capital markets; public employment and public wage reforms.

Fiscal and monetary measures implemented with IMF support included:
- A fiscal package among the largest in emerging Europe, including increased healthcare spending, wage subsidies, universal cash transfers, and a state guarantee scheme for bank loans to small and medium-sized enterprises.
- Central bank actions: cut key policy interest rate, injected liquidity into the banking system, introduced a moratorium on bank loan repayments.
Serbia avoided IMF financial assistance during the pandemic by meeting financing needs in markets and via other institutions.
Economic impact and projection notes:
- Authorities’ estimate for real GDP contraction in 2020: 1.1 percent.
- Pre-crisis momentum: growth of 5.2 percent in Q1 2020 compared with Q1 2019.
- Despite the relatively small 2020 contraction, real GDP in 2022 is expected to be 4 percent points below pre-COVID-19 projections.

Fiscal outcome and financing:
- Fiscal deficit in 2020 rose to almost 9 percent of GDP.
- Serbia returned to international markets in early May 2020 with a EUR 2 billion Eurobond.
- In December 2020, a 10-year Eurobond worth $1.2 billion was issued at a relatively low yield.
Other financing developments:
- Local banks’ appetite for government securities recovered since May 2020.
- International financial institutions other than the IMF offered sizable financing and bilateral loans.
- From an external perspective, balance of payment needs remained manageable despite sharp contractions in remittances and foreign direct investment.
- Foreign reserves remained broadly stable during 2020.

Sustain a solid economic recovery in 2021 as most crisis measures expire.
High uncertainty about the pandemic’s course and delayed effects on the financial health of firms and households; additional support measures for the economy and vulnerable groups may become necessary.
Structural reform priorities:
- Accelerate reforms to transform Serbia into a dynamic, private sector-driven market economy and prepare for EU Single Market entry.
- Improve the quality of institutions and governance, including well-governed and managed state-owned enterprises.
- Address infrastructure gaps to support competitiveness, foreign investment, and integration into regional and global value chains.
- Fight informality to facilitate doing business and generate higher fiscal revenues.
- Strengthen commitment to fight corruption, enhance the rule of law, and improve court system efficiency to improve the business climate and foster long-term growth.

Serbian authorities expressed interest in a new IMF program and indicated they do not need IMF financing.
A successor PCI is possible to support recovery; it would:
- Support continuation of policies to strengthen macroeconomic stability and financial sector resilience.
- Continue implementation of structural and institutional reforms.
- Require agreement on fiscal, monetary, and financial policies and an ambitious reform agenda.
IMF will remain engaged through technical assistance in areas including tax administration reform, public financial management, and fiscal statistics.

July 2018
end of January
January 8, 2021
1.1 percent (real GDP contraction in 2020, authorities’ estimate)
5.2 percent (growth in Q1 2020 compared with Q1 2019)
4 percent points (real GDP in 2022 expected to be below pre-COVID-19 projections)
almost 9 percent of GDP (fiscal deficit in 2020)
EUR 2 billion (Eurobond issued in early May 2020)
10-year (Eurobond tenor issued in December 2020)
$1.2 billion (Eurobond issued in December 2020)

IMF: "IMF Policy Support Program Helps Serbia Advance Reforms and Cope with COVID-19" (January 8, 2021).