Press Release No. 09/31

Press Release: Statement by IMF Deputy Managing Director Murilo Portugal at the Conclusion of his Visit to Serbia

February 10, 2009

Mr. Murilo Portugal, Deputy Managing Director of the International Monetary Fund (IMF), visited Serbia on February 9−10. He issued the following statement in Belgrade at the conclusion of the visit:

"Today I had the privilege to visit Belgrade for the first time. I met with the Serbian authorities, including President Boris Tadić, Prime Minister Mirko Cvetković, Deputy Prime Ministers Mlađan Dinkić and Božidar Đelić, Finance Minister Diana Dragutinović, and Governor Radovan Jelašić. I am grateful for their invitation and warm hospitality.

"The discussions concerned recent global and regional economic developments and Serbia's economic prospects, including in the context of the precautionary Stand-By Arrangement recently agreed with the IMF. Against a backdrop of gloomier economic data, I have been impressed with the authorities' readiness to tackle the growing policy challenges. Clearly, Serbia is beginning to feel the full blow of the global economic crisis, with slowing GDP growth, falling exports, lower capital inflows, and reduced credit activity. There was agreement that Serbia's macroeconomic environment has worsened compared to what was assumed in the precautionary arrangement.

"These economic developments are set to further undercut budgetary revenue and lead to a wider fiscal deficit. Given the limited scope for mobilizing additional financing, new fiscal adjustment measures will likely be needed to close much of the gap, entailing difficult choices.

"The National Bank of Serbia is rightly committed to an inflation target, whose attainment should be helped by lower commodity prices. It is important that the authorities continue to adhere to the managed floating exchange rate regime, which has served the country well, refraining from targeting a particular exchange rate level.

"Tackling Serbia's significant macroeconomic imbalances requires both additional external financing and stronger overall economic policies. The growth boom in recent years fed off large foreign capital flows that supported household and corporate credit. These flows have dried up, and the private sector has to adjust by reducing spending and imports. Additional financing from international financial institutions may smooth this adjustment and help protect the most vulnerable population groups, but its sustainability hinges on a coherent framework and liberalizing reforms that shore up investor confidence.

"An IMF staff mission will review these issues with the Serbian authorities in due course and discuss policy options."