IMF Executive Board Concludes 2021 Article IV Consultation with Republic of Serbia and Approves a 30-Month Policy Coordination Instrument
IMF News, June 18, 2021
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- Published: June 18, 2021
Economic outlook and near-term assessment
- Serbia’s economic recovery is expected to continue in 2021, supported by ongoing measures to boost the economy.
- The economic contraction in 2020 is estimated at around 1 percent.
- Real GDP growth is projected to reach 6 percent in 2021 (noting strong 1Q2021 data and a fast vaccine rollout).
- Over the medium-term, growth is projected to gradually converge to its potential of 4 percent.
- Inflation is projected to remain in the lower half of the inflation target band.
- The current account deficit is projected at about 5 percent of GDP and to remain fully covered by FDI.
- Risks:
- Downside: New waves of infections and new variants of the virus could lead to higher fiscal and external financing needs.
- Upside: Stronger-than-expected impact of the fast vaccine rollout domestically and globally could provide an upside.
Policy Coordination Instrument (PCI) and program design
- The Executive Board approved a new 30-month Policy Coordination Instrument (PCI).
- The new PCI:
- Builds on the 2018 PCI successfully completed in January 2021.
- Aims at supporting recovery from the pandemic, maintaining macroeconomic stability, anchoring the medium-term fiscal policy framework, and pushing ahead with structural reforms to deliver more inclusive and sustainable growth.
- Involves no use of IMF financial resources.
- Will have program reviews on a semiannual fixed schedule.
- Successful completion of program reviews will help signal Serbia’s commitment to continued strong macroeconomic policies and structural reforms.
Fiscal, monetary, and financial sector assessment
- Fiscal policy:
- The supplementary budget for 2021 (adopted in April) boosts capital expenditure and extends policy support to households and corporates.
- Fiscal policy is appropriately focused on providing support to the economy.
- Recommendation: Once recovery gains momentum, rebuild policy buffers and anchor them by a new fiscal rule.
- Prioritize productive capital investments, moderate growth of public wages and pensions, and further enhance fiscal management.
- Monetary policy:
- Monetary policy is accommodative, with inflation under control.
- Extraordinary monetary and financial sector policy measures have supported economic activity through the pandemic.
- The banking system remains liquid, well capitalized, and stable; continued close monitoring of banking sector risks is critical as crisis support measures expire.
- Financial deepening and markets:
- Authorities’ plans to encourage dinarization, improve capital markets, and access development finance are welcomed.
- Developing domestic capital markets would enhance financial deepening and support medium-term growth.
- Some Directors suggested greater exchange rate flexibility could raise awareness of risks of unhedged FX loans and underscored the importance of developing hedging markets; a few Directors noted the potentially limited role of a more flexible exchange rate as a shock absorber.
Structural and institutional reform priorities
- Further structural and institutional reforms are needed to underpin high, inclusive, and greener growth and accelerate income convergence with the EU.
- Priority areas highlighted:
- Strengthening governance and management of state-owned enterprises (SOEs); welcome for the new ownership and governance strategy.
- Improve the business environment to attract investment.
- Strengthen the rule of law, improve judicial system efficiency, and curb corruption.
- Invest in a green and digital economy to raise productivity, support job creation, and enhance economic and environmental resilience.
- Reform labor taxation and social protection to support inclusion.
- Promote green growth and enhance the social safety net to support the recovery and sustainable development.
Executive Board assessment and guidance
- Directors commended the authorities’ strong policy response that cushioned the pandemic’s impact and set the stage for recovery.
- Continued policy support is necessary given high uncertainty, while safeguarding macroeconomic and financial stability.
- Preserve flexibility in the policy response and avoid premature withdrawal of support; have a contingency plan.
- Any additional assistance should be targeted, consider narrowing fiscal room, and maintain transparency and accountability.
Selected economic and social indicators (from Table 1)
- Real GDP (percent change):
- 2018: 4.5
- 2019: 4.2
- 2020: -1.5
- 2021 (Est.): -1.0
- 2021 (Proj.): 5.0
- 2021 (CR 21/8 Proj.): 6.0
- Real domestic demand (absorption) (percent change):
- 2018: 6.5
- 2019: 6.2
- 2020: -1.7
- 2021 (Est.): 0.0
- 2021 (Proj.): 6.7
- 2021 (CR 21/8 Proj.): 5.8
- Consumer prices (average):
- 2018: 2.0
- 2019: 1.9
- 2020: 1.7
- 2021 (Est.): 1.6
- 2021 (Proj.): 2.5
- 2021 (CR 21/8 Proj.): 2.3
- Unemployment rate (working age 15-64) (percent):
- 2018: 3.5
- 2019: 1.8
- 2020: 2.7
- 2021 (Est.): 2.9
- Nominal GDP (in billions of dinars):
- 2018: 5,073
- 2019: 5,418
- 2020: 5,524
- 2021 (Est.): 5,464
- 2021 (Proj.): 5,940
- 2021 (CR 21/8 Proj.): 5,942
- 2022 (Proj.): 6,375
- 2023 (Proj.): 6,389
- (other series in table: 6,868)
- General government finances (percent of GDP):
- Revenue:
- 2018: 41.5
- 2019: 42.1
- 2020: 40.3
- 2021 (Est.): 41.3
- 2021 (Proj.): 40.8
- 2021 (CR 21/8 Proj.): 41.7
- Expenditure:
- 2018: 40.9
- 2019: 42.3
- 2020: 49.2
- 2021 (Est.): 49.4
- 2021 (Proj.): 43.8
- 2021 (CR 21/8 Proj.): 48.7
- Current:
- 2018: 36.4
- 2019: 36.9
- 2020: 37.6
- 2021 (Est.): 36.7
- 2021 (Proj.): 37.2
- 2021 (CR 21/8 Proj.): 36.5
- Capital and net lending:
- 2018: 4.1
- 2019: 5.1
- 2020: 5.9
- 2021 (Est.): 7.6
- 2021 (Proj.): 6.8
- Amortization of called guarantees:
- 2018: 0.4
- 2019: 0.2
- 2020: 0.1
- 2021 (Est.): 0.3
- Fiscal balance:
- 2018: 0.6
- 2019: -0.2
- 2020: -8.9
- 2021 (Est.): -8.1
- 2021 (Proj.): -3.0
- 2021 (CR 21/8 Proj.): -6.9
- Primary fiscal balance (cash basis):
- 2018: 2.8
- 2019: -6.1
- 2020: -1.1
- 2021 (Est.): -5.0
- Structural primary fiscal balance:
- 2018: 1.5
- 2019: 1.2
- 2020: 0.5
- 2021 (Est.): -0.3
- 2021 (Proj.): -1.6
- Gross debt (percent of GDP):
- 2018: 54.4
- 2019: 52.8
- 2020: 59.1
- 2021 (Est.): 58.4
- 2021 (Proj.): 57.7
- 2021 (CR 21/8 Proj.): 60.3
- (other series: 55.5, 58.9, 56.0)
- Monetary sector (end of period 12-month change, percent):
- Money (M1): 2018: 20.1; 2019: 16.3; 2020: 24.2; 2021 (Est.): 36.3; 2021 (Proj.): 7.5; 2021 (CR 21/8 Proj.): 11.8
- Broad money (M2): 2018: 15.0; 2019: 8.8; 2020: 12.7; 2021 (Est.): 18.4; 2021 (Proj.): 7.1; 2021 (CR 21/8 Proj.): 9.1
- Domestic credit to non-government (period average, percent): 10.1, 10.6, 12.0, 5.6, 6.6
- Balance of payments (percent of GDP):
- Current account balance:
- 2018: -4.8
- 2019: -5.7
- 2020: -4.3
- 2021 (Est.): -5.8
- 2021 (Proj.): -5.1
- 2021 (CR 21/8 Proj.): -5.6
- (other series: -4.9)
- Exports of goods:
- 2018: 35.2
- 2019: 35.7
- 2020: 32.6
- 2021 (Est.): 34.5
- 2021 (Proj.): 33.8
- 2021 (CR 21/8 Proj.): 39.3
- (other series: 36.8)
- Imports of goods:
- 2018: -47.1
- 2019: -47.9
- 2020: -43.5
- 2021 (Est.): -45.7
- 2021 (Proj.): -46.5
- 2021 (CR 21/8 Proj.): -50.4
- (other series: -49.4, -51.0, -51.3)
- Trade of goods balance:
- 2018: -11.9
- 2019: -12.2
- 2020: -10.9
- 2021 (Est.): -11.2
- 2021 (Proj.): -12.7
- 2021 (CR 21/8 Proj.): -12.6
- Capital and financial account balance:
- 2018: 5.2
- 2019: 6.3
- External debt (percent of GDP):
- 2018: 66.1
- 2019: 65.5
- 2020: 67.4
- 2021 (Est.): 70.9
- 2021 (Proj.): 64.3
- 2021 (CR 21/8 Proj.): 70.6
- (other series: 61.4, 68.0, 64.8)
- Private external debt (percent of GDP): 30.9, 30.8, 29.9, 34.1, 28.8, 31.8, 27.3, 30.2, 28.5
- Gross official reserves (in billions of euro):
- 2018: 11.3
- 2019: 13.4
- 2020: 13.5
- 2021 (Est.): 13.7
- 2021 (Proj.): 15.2
- 2021 (CR 21/8 Proj.): 14.3
- (other series: 16.1, 16.9)
- Gross official reserves (in months of prospective imports):
- 2018: 4.8
- 2019: 6.1
- 2020: 5.5
- 2021 (Est.): 5.4
- 2021 (Proj.): 4.7
- Gross official reserves (percent of short-term debt):
- 2018: 195.3
- 2019: 408.9
- 2020: 204.0
- 2021 (Est.): 412.3
- 2021 (Proj.): 209.8
- 2021 (CR 21/8 Proj.): 463.6
- (other series: 217.9, 493.1, 516.3)
- Gross official reserves (percent of broad money, M2):
- 2018: 52.2
- 2019: 57.8
- 2020: 56.8
- 2021 (Est.): 54.6
- 2021 (Proj.): 53.2
- 2021 (CR 21/8 Proj.): 60.1
- (other series: 58.7)
- Risk-weighted metric (percent of risk-weighted metric) 8/:
- 2018: 111.2
- 2019: 126.2
- 2020: 122.0
- 2021 (Est.): 126.0
- 2021 (Proj.): 120.7
- 2021 (CR 21/8 Proj.): 129.0
- (other series: 119.2, 130.3, 129.6)
- Exchange rate (dinar/euro, period average):
- 2018: 118.3
- 2019: 117.9
- 2020: 117.6
- Social indicators:
- Per capita GDP (in US$): 7,252; 7,392; 7,723; 7,646; 8,442; 8,878; 9,653; 9,629; 10,368
- Real GDP per capita (percent change): -0.4; 6.4; 4.9
- Population (in million): 7.0; 6.9
Selected statements
- Tao Zhang, Deputy Managing Director and Acting Chair, emphasized:
- Serbia has coped relatively well with the COVID-19 pandemic.
- Sustaining a solid economic recovery should be a policy priority given uncertainty.
- Scaling up public investment—including in green infrastructure—should support near-term growth.
- Further structural and institutional reforms, green growth promotion, and enhancing social safety nets were stressed.
Press Release No. 21/189, June 18, 2021 — IMF Communications Department