## IMF Staff Completes a Virtual Review Mission to Serbia

_IMF News, July 3, 2020_

## Source details

**Canonical URL:** [IMF Staff Completes a Virtual Review Mission to Serbia](https://www.imf.org/en/news/articles/2020/07/02/pr20253-serbia-imf-staff-completes-a-virtual-review-mission)

## Other formats

- [Markdown version](/en/news/articles/2020/07/02/pr20253-serbia-imf-staff-completes-a-virtual-review-mission/index.md)
- [Structured JSON version](/en/news/articles/2020/07/02/pr20253-serbia-imf-staff-completes-a-virtual-review-mission/index.json)
- [Bundle manifest](/en/news/articles/2020/07/02/pr20253-serbia-imf-staff-completes-a-virtual-review-mission/bundle-manifest.json)

## Bibliographic details
- Published: July 3, 2020

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### Mission outcome and procedural steps
- Press Release No. 20/253; mission led by Jan Kees Martijn.
- IMF mission held virtual meetings with the Serbian authorities during June 24 – July 3, 2020.
- Staff-level agreement reached on policies needed to complete the fourth review under the Policy Coordination Instrument (PCI).
- Agreement is subject to approval by IMF Management and Executive Board; consideration by the Board is tentatively scheduled for the second half of August 2020.
- The mission is grateful for the authorities’ close cooperation.

### Macroeconomic impact and outlook
- The COVID-19 pandemic has had a significant adverse impact on Serbia’s economic activity.
- Real GDP is projected to contract by 3 percent in 2020, compared to an increase by 4.2 percent in 2019, and is expected to rebound to 6 percent growth in 2021.
- The shock is affecting the economy through lower external demand, weaker foreign investment and remittances, domestic supply constraints, and disruptions in regional and global supply chains.
- Given the highly uncertain economic outlook, the mission recommends careful contingency planning.

### Fiscal position and policy adjustments
- Quantitative targets have been reset to reflect the major changes in the fiscal outlook for 2020.
- The fiscal package includes increased healthcare spending, tax deferrals, wage subsidies, universal cash transfers, and a state guarantee scheme for bank loans to SMEs.
- The implementation of fiscal measures, together with the decline in revenues, will raise the fiscal deficit in 2020 to more than 7 percent of GDP, compared with 0.5 percent of GDP in the initial budget.
- Given the projected economic rebound and the temporary nature of the fiscal measures, it should be possible to reduce the fiscal deficit to about 2 percent of GDP next year.
- Public debt, which was declining steadily prior to the pandemic, is now expected to increase in 2020 while staying below 60 percent of GDP, but should resume a clear downward trajectory in 2021.
- To make room for higher public investment and in light of budget risks:
  - Increases in public sector wages and pensions should be limited in 2021.
  - Ad-hoc pension increases, or one-off payments should be avoided.
  - Limiting wages and pension increases should ensure that the public sector wage bill as a share of GDP returns to more sustainable levels after increasing in the last two years.
- There is a need for scaling up public investment to support the economic recovery and boost potential growth.
- The economic shock is amplifying fiscal risks stemming from troubled SOEs and state-guaranteed loans.

### Monetary and financial sector response
- The National Bank of Serbia (NBS) contributed to the response by cutting the key policy rate and injecting liquidity in the banking system.
- NBS introduced a three-month moratorium on bank loan repayments and further measures to preserve monetary and financial stability.

### Structural reforms and governance priorities
- Implementation of structural reforms has faced delays due to the pandemic.
- Priority reforms identified:
  - Strengthen tax administration.
  - Reform public sector wage and employment systems.
  - Improve corporate governance of public enterprises.
  - Develop Serbia’s capital market.
- A thorough assessment of electricity tariffs is warranted to ensure full-cost recovery.
- The mission welcomes progress towards completing the privatization of Komercijalna and encourages further efforts to privatize Petrohemija.

### Policy recommendations (summarized)
- Continue focusing policies on:
  - Supporting the economy through the crisis.
  - Preserving macroeconomic and financial stability.
  - Managing risks adequately.
  - Protecting vulnerable groups.
- Reset and adhere to revised quantitative targets reflecting the changed 2020 fiscal outlook.
- Limit public sector wage and pension increases in 2021 to create fiscal space for public investment.
- Avoid ad-hoc pension increases or one-off payments.
- Proceed with structural reforms and privatizations to reduce fiscal risks and boost potential growth.

*IMF press release, July 3, 2020.*

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## Content in this bundle

- **Press Release-End of Mission AIV UFR**
  - [Press Release-End of Mission AIV UFR (Markdown version)](/-/media/files/news/press-release/2020/pr20253-srb-serbia.pdf.md){rel="alternate" type="text/markdown"}
  - [Press Release-End of Mission AIV UFR (PDF)](/-/media/files/news/press-release/2020/pr20253-srb-serbia.pdf){rel="external" type="application/pdf"}

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## References

- [Republic of Serbia and the IMF](http://www.imf.org/external/country/SRB/index.htm)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2020/07/02/pr20253-serbia-imf-staff-completes-a-virtual-review-mission_