## IMF Executive Board Completes Second Review Under the Policy Coordination Instrument and Modification of Targets for the Republic of Serbia _IMF News, June 27, 2022_ ## Source details **Canonical URL:** [IMF Executive Board Completes Second Review Under the Policy Coordination Instrument and Modification of Targets for the Republic of Serbia](https://www.imf.org/en/news/articles/2022/06/27/pr22230-imf-executive-board-completes-policy-coordination-modification-targets-for-serbia) ## Other formats - [Markdown version](/en/news/articles/2022/06/27/pr22230-imf-executive-board-completes-policy-coordination-modification-targets-for-serbia/index.md) - [Structured JSON version](/en/news/articles/2022/06/27/pr22230-imf-executive-board-completes-policy-coordination-modification-targets-for-serbia/index.json) - [Bundle manifest](/en/news/articles/2022/06/27/pr22230-imf-executive-board-completes-policy-coordination-modification-targets-for-serbia/bundle-manifest.json) ## Bibliographic details - Published: June 27, 2022 --- ### Overview - The Executive Board concluded the Second Review Under the Policy Coordination Instrument (PCI) for the Republic of Serbia. - The PCI was approved on June 18, 2021, and aims to support recovery from the pandemic, maintain macroeconomic stability, anchor the medium-term fiscal policy framework, and advance structural reforms to deliver more inclusive and sustainable growth. - The war in Ukraine, an energy crisis, and high inflation have disrupted the recovery from the COVID-19 pandemic. ### Macroeconomic outlook and inflation - Real GDP: - 2021: 7.4 percent - 2022 projection: 3.5 percent - 2023 projection: 4.0 percent - Drivers of the 2022 slowdown: high inflation dampening consumer demand, curtailed trade with Russia, and lower external demand. - Inflation: - Inflation increased to 10.4 percent in May 2022. - Core inflation was 6.3 percent. - Monetary policy response: - The monetary policy rate has been increased three times since April (2022) in response to continued high inflation. - Risks to the near-term outlook are elevated and mostly to the downside: a potentially prolonged war in Ukraine, further pressures on energy and commodity prices, supply chain disruptions, lower external demand, and continued production shortfalls in the energy sector. - The IMF staff note that provided global inflation moderates, inflation should return to within the NBS target band over the medium term. ### Energy sector impact and reforms - Energy shock in 2021-22 winter: - Shortfalls in domestic electricity production coincided with rising global energy prices. - Increased total energy costs by about 2 percent of GDP. - Authorities’ policy response: - Actions to preserve financial stability, help companies navigate the international sanctions regime and supply chain disruptions, mitigate pass-through of high global commodity prices through regulation, and provide financing for energy imports. - Started to secure energy supply and address medium-term reform needs in the energy sector. - Policy recommendations and priorities: - Reforms of the energy sector are urgently needed to restore reliable supply and ensure cost recovery. - A strategy for the state-owned power company Elektroprivreda Srbije (EPS) and timely adoption of the National Climate and Energy Plan will provide an essential framework for energy investments, particularly in renewable sources. - Fiscal support provided in the past winter helped maintain energy supply; any further economic disruptions warranting support should take the form of targeted measures accommodated through spending reprioritization. ### Fiscal policy, public finances, and structural reforms - Fiscal stance and performance: - The fiscal deficit target of 3 percent of GDP for 2022 remains appropriate and feasible, supported by strong revenue collection. - Higher than budgeted tax revenue has covered new spending measures to date. - Fiscal aggregates (selected from Table 1): - Revenue (percent of GDP): 2021: 43.6; 2022: 43.3; 2023: 41.7; 2024: 41.3 - Expenditure (percent of GDP): 2021: 42.2; 2022: 49.0; 2023: 48.5; 2024: 47.4 - Fiscal balance (percent of GDP): 2018: 0.6; 2019: -0.2; 2020: -8.0; 2021: -5.0; 2022: -4.1; 2023: -3.0; 2024: -1.5 - Primary fiscal balance (cash basis, percent of GDP): 2018: 2.8; 2019: 1.8; 2020: -6.0; 2021: -3.1; 2022: -2.4; 2023: -1.2; 2024: -1.3 - Structural primary fiscal balance (percent of GDP): 2018: 2.9; 2019: 1.5; 2020: -4.0; 2021: -3.4; 2022: -2.5; 2023: -1.7; 2024: -1.0 - Gross debt (percent of GDP): 2018: 54.4; 2019: 52.8; 2020: 57.9; 2021: 58.3; 2022: 57.2; 2023: 56.5; 2024: 55.1 - Structural reforms and institutions: - Structural reforms should continue to underpin medium-term growth. - New fiscal rules expected to be launched with the 2023 budget will provide an important anchor for medium-term fiscal discipline. - The planned primary dealer system will support capital market development. ### Financial sector and external position - External sector and reserves: - Current account balance (percent of GDP): 2018: -4.8; 2019: -6.9; 2020: -4.4; 2021: -4.3; 2022: -6.1; 2023: -5.7 - Gross official reserves (in billions of euro): 2018: 11.3; 2019: 13.4; 2020: 17.1; 2021: 16.5; 2022: 18.0 - Reserves (in months of prospective imports) and percent of short-term debt, and percent of broad money (M2) are reported in Table 1 with multiple year observations. - External debt (percent of GDP): 2018: 66.1; 2019: 65.7; 2020: 70.3; 2021: 68.4; 2022: 71.3; 2023: 64.8; 2024: 66.2 - Banking and monetary indicators (selected): - Money (M1) growth rate: 2018: 20.1; 2019: 16.3; 2020: 36.3; 2021: 11.4; 2022: 14.5; 2023: 11.2; 2024: 8.6 - Broad money (M2) growth rate: 2018: 15.0; 2019: 8.8; 2020: 18.4; 2021: 10.6; 2022: 13.0; 2023: 8.4; 2024: 11.8 - Domestic credit to non-government (percent change, at constant exchange rates): 2018: 9.5; 2019: 12.0; 2020: 5.8; 2021: 9.9; 2022: 13.5; 2023: 7.5; 2024: (table continues) - The authorities acted swiftly to preserve financial stability amid shocks. ### Selected socio-economic indicators - Per capita GDP (US$): 2018: 7,252; 2019: 7,397; 2020: 7,700; 2021: 9,012; 2022: 9,178; 2023: 9,940; 2024: 9,597 - Real GDP per capita (percent change): 2018: 4.6; 2019: -0.4 - Unemployment rate for working age population (15-64) is reported in the table (series includes 14.1, 11.6, 10.1 for earlier years). ### Key takeaways from the Board statement (Kenji Okamura, Deputy Managing Director and Acting Chair) - Serbia has shown resilience during the Covid-19 pandemic, but faces new challenges from the war in Ukraine, high inflation, and the energy crisis. - Authorities’ policies have helped mitigate immediate impacts and preserved macro-financial stability, but the near-term outlook is subject to downside risks and high uncertainty. - The fiscal deficit target of 3 percent of GDP for 2022 is appropriate and feasible given strong revenue collection. - Any further support should be targeted and accommodated through spending reprioritization. - Urgent energy sector reforms, a strategy for EPS, and timely adoption of the National Climate and Energy Plan are essential. - Continued monetary policy tightening is appropriate to curb inflation expectations and help bring inflation back within the inflation band over the policy horizon. - Structural reforms and new fiscal rules will underpin medium-term growth and fiscal discipline. *Source: IMF Press Release No. 22/230, June 27, 2022.* --- ## 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/) - [Press Release No. 21/189](https://www.imf.org/en/News/Articles/2021/06/21/pr21189-serbia-imf-executive-board-concludes-2021-article-iv-consultation-and-approves-30-month-pci) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2022/06/27/pr22230-imf-executive-board-completes-policy-coordination-modification-targets-for-serbia_