IMF Staff Concludes Visit to Serbia

IMF News, October 22, 2021

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IMF mission led by Jan Kees Martijn held virtual and in-person meetings with Serbian authorities during October 11 – 22, 2021 to discuss progress under the Policy Coordination Instrument (PCI).
Statement issued at conclusion of the mission; views are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
Successful completion of the first review is subject to meeting remaining program conditions and approval by IMF Management and the Executive Board; Board consideration is tentatively scheduled for December 2021.

“GDP growth is projected at 6.5 percent in 2021 and at 4.5 percent in 2022.”
“The current-account deficit is projected to narrow to about 4 percent of GDP this year and remain fully financed by net FDI inflows.”
Banking system described as “stable, liquid and well capitalized.”
Exchange rate has “remained stable.”

“Headline inflation increased to 5.7 percent in September, driven by a low-base effect and temporary factors including rising energy prices and higher unprocessed food prices due to drought.”
“Core inflation has remained relatively stable.”
Expectation: inflation “is expected to stay above the upper bound of the NBS target band in the remainder of 2021 and return within the target band in 2022.”
Monetary response: National Bank of Serbia (NBS) “appropriately tightened monetary conditions in early October by raising the average repo rates within the interest rate corridor while keeping the policy rate unchanged.”
Recommendation: “The NBS should continue close monitoring of the inflation outlook and stand ready to respond as needed.”

Fiscal performance in 2021 described as “strong … boosted by an exceptional increase in tax revenues amid strong economic activity.”
2021 government deficit projection: “decline to 4.9 percent of GDP, 2 percentage points of GDP lower than initially expected.”
Under the new supplementary budget, part of revenue overperformance will finance additional investment spending.
2022 fiscal stance guidance:
- “It would be appropriate to narrow the 2022 fiscal deficit to 3 percent of GDP, putting public debt on a clear downward path.”
- Public sector wage increases should be limited.
- Structural pension increases should be guided by the existing indexation formula.
- Budget should ensure adequate room for healthcare and maintain capital expenditures above historical levels to address infrastructure needs and support a green recovery.
- Approval of a budget with a deficit and primary spending level along these lines will be a prior action for the first review under the PCI.

Risk: “Rising international energy prices present risks to inflation and economic growth.”
Existing policy: “The current system of partially regulated energy prices in Serbia helps address the immediate negative impact on households.”
Recommendations if energy price spikes persist:
- Measures to cushion adverse long-term effects on businesses should be “limited in time and scale, transparent, and non-discriminatory, based on objective criteria.”
- Avoid additional fiscal risks from SOEs.
- Continue efforts to promote energy efficiency.
- “If higher international energy prices were to persist, the increases should be passed on throughout the economy while protecting vulnerable households.”

Progress noted in:
- Privatizing Petrohemija.
- Improving fiscal reporting.
- Strengthening fiscal risks management.
- Enhancing state aid control.
Policy priorities and reforms remaining to be implemented:
- Implement the new capital market development strategy to support domestic investment.
- Introduce a new payroll information system.
- Anchor medium-term fiscal discipline with a new set of fiscal rules.
- Continue implementing the new SOE ownership strategy.
- Ensure a green recovery.

IMF Press Release No. 21/308, October 22, 2021.

IMFa završio posetu Srbiji
- IMFa završio posetu Srbiji (Markdown version)
- IMFa završio posetu Srbiji (PDF)