IMF Executive Board Completes the Final Review Under the Policy Coordination Instrument for the Republic of Serbia

January 8, 2021

  • Program implementation has remained on track throughout the PCI that will expire in January 2021.
  • Due to the COVID-19 pandemic, Serbia’s real GDP is projected to contract by 1.5 percent in 2020 and recover in 2021 with growth at 5 percent.
  • The 2021 budget appropriately balances support for economic recovery with fiscal responsibility.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Fifth Review Under the Policy Coordination Instrument (PCI) for the Republic of Serbia. [1] The Executive Board’s decision was taken without a meeting. [2]

This was the final review under the PCI that was approved on July 18, 2018 (see Press Release No. 18/299 ). Program implementation has remained on track throughout the PCI. The policy program has facilitated macroeconomic and financial stability, while advancing an ambitious reform agenda to foster rapid growth, job creation, and improved living standards. In response to the COVID-19 pandemic, program priorities shifted to supporting the economy and people through the crisis.

Due to the pandemic , Serbia’s real GDP growth is projected to contract by 1.5 percent in 2020 before rebounding to 5 percent in 2021. Economic activity picked up in the third quarter of 2020 following the sharp contraction during the previous quarter. Policy measures—including monetary policy support and a large fiscal package worth about 9 percent of GDP—have played an important role in supporting the economy. The recent acceleration in infection rates in Serbia and its major trading partners could negatively impact the nascent recovery and a stronger-than-expected infection wave presents a clear downside risk to the outlook. The quantitative targets for end-September 2020 were met and sufficient progress was made in meeting the structural reform targets. Inflation remains close to the lower limit of the National Bank of Serbia’s inflation band.

The fiscal deficit in 2021 is planned at 3 percent of GDP, and would help ensure that public debt in percent of GDP resumes a declining path, while also creating enough space to support the recovery, including through higher public investments. Within this envelope, increases in public sector wages should be limited and pension increases are expected to follow the agreed Swiss formula. The unwinding of support measures could be made more gradual if further shocks materialize.

Going forward, it will be important for Serbia to build on its achievements under the current program by continuing to pursue structural and institutional reforms that will deliver faster convergence of incomes with EU countries. Medium-term priorities include capital market development and improving governance, including strengthening the rule of law.

Table 1. Serbia: Selected Economic and Social Indicators

2016

2017

2018

2019

2020

2021

2022

CR 20/270

Proj.

CR 20/270

Proj.

Proj.

(Percent change, unless otherwise indicated)

Real sector

Real GDP

3.3

2.1

4.5

4.2

-3.0

-1.5

6.0

5.0

4.5

Real domestic demand (absorption)

1.5

3.9

6.5

6.2

-1.8

-1.7

8.0

6.7

4.6

Consumer prices (average)

1.1

3.1

2.0

1.9

1.5

1.7

1.9

1.9

2.3

GDP deflator

1.5

3.0

2.0

2.4

3.8

3.5

2.3

2.4

2.7

Unemployment rate (in percent) 1/

15.9

14.1

13.3

10.9

…

…

…

…

…

Nominal GDP (in billions of dinars)

4,528

4,761

5,073

5,418

5,448

5,524

5,907

5,940

6,375

(Percent of GDP)

General government finances

Revenue 2/

40.7

41.5

41.5

42.1

38.2

40.3

41.1

40.8

41.3

Expenditure 2/

41.9

40.4

40.9

42.3

46.8

49.2

43.2

43.8

42.8

Current 2/

37.9

36.7

36.4

36.9

42.3

43.1

37.5

37.6

36.7

Capital and net lending

3.2

3.1

4.1

5.1

4.3

5.9

5.3

6.0

5.8

Amortization of called guarantees

0.9

0.6

0.4

0.2

0.2

0.1

0.4

0.2

0.3

Fiscal balance 3/

-1.2

1.1

0.6

-0.2

-8.6

-8.9

-2.0

-3.0

-1.5

Primary fiscal balance (cash basis)

1.7

3.6

2.8

1.8

-6.6

-6.9

-0.1

-1.1

0.3

Structural primary fiscal balance 4/

1.7

3.7

2.8

1.6

1.1

1.2

1.1

0.5

0.4

Gross debt /5

68.8

58.6

54.4

52.8

59.8

59.1

57.0

57.7

55.5

(End of period 12-month change, percent)

Monetary sector

Money (M1)

20.3

9.7

20.1

16.3

6.0

24.2

12.2

7.5

8.7

Broad money (M2)

9.8

3.3

15.0

8.8

5.5

12.7

9.0

7.1

7.3

Domestic credit to non-government 6/

1.8

4.4

10.1

9.5

6.6

10.6

8.4

6.5

7.8

(Period average, percent)

Interest rates (dinar)

NBS key policy rate

3.3

3.9

3.1

2.3

…

…

…

…

…

Interest rate on new FX and FX-indexed loans

3.1

3.1

2.8

3.1

…

…

…

…

…

(Percent of GDP, unless otherwise indicated)

Balance of payments

Current account balance

-2.9

-5.2

-4.8

-6.9

-6.4

-5.7

-6.5

-5.8

-5.6

Exports of goods

34.8

35.9

35.2

35.7

33.2

32.6

33.5

33.8

36.8

Imports of goods

-43.3

-46.1

-47.1

-47.9

-44.1

-43.5

-46.0

-46.5

-49.4

Trade of goods balance

-8.5

-10.2

-11.9

-12.2

-10.9

-10.9

-12.6

-12.7

-12.6

Capital and financial account balance

0.6

4.8

6.7

10.6

6.1

5.6

7.3

6.6

6.6

External debt (percent of GDP) 7/

76.4

68.8

66.1

66.1

68.6

67.4

65.3

64.3

61.4

of which: Private external debt

29.4

29.6

30.9

31.7

30.3

29.9

29.0

28.8

27.3

Gross official reserves (in billions of euro)

10.2

10.0

11.3

13.4

13.2

13.4

13.6

13.7

14.3

(in months of prospective imports)

5.5

4.7

4.8

6.2

5.6

5.5

5.1

5.0

4.7

(percent of short-term debt)

345.2

200.3

194.2

204.4

247.9

204.0

255.8

209.8

217.9

(percent of broad money, M2)

58.7

53.2

52.2

57.8

57.2

56.8

54.8

54.6

53.2

(percent of risk-weighted metric)

…

…

113.1

121.8

177.3

122.0

180.2

120.7

119.2

Exchange rate (dinar/euro, period average)

123.1

121.4

118.3

117.9

…

…

…

…

…

REER (annual average change, in percent;

+ indicates appreciation)

-1.0

2.9

2.8

1.0

…

…

…

…

…

Social indicators

Per capita GDP (in US$)

5,765

6,293

7,252

7,392

7,458

7,723

8,442

8,922

9,653

Real GDP per capita (percent change)

3.9

2.6

5.1

4.5

-2.6

-1.1

6.4

5.5

4.9

Population (in million)

7.1

7.0

7.0

7.0

6.9

6.9

6.9

6.9

6.9

Sources: Serbian authorities; and IMF staff estimates and projections.

1/ Unemployment rate for working age population (15-64).

2/ Includes employer contributions.

3/ Includes amortization of called guarantees.

4/ Primary fiscal balance adjusted for the automatic effects of the output gap both on revenue and spending as well as one-offs.

5/ Excludes state guarantees on bank loans under the credit guarantee scheme introduced in response to the COVID-19 crisis, estimated

at 0.7 percent of GDP as of mid-October 2020.

6/ At constant exchange rates.

7/ After CR19/369, domestic securities held by non-residents are included in external debt. Historical data were updated since 2015.


[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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