Press Release No. 10/131

Press Release: IMF Executive Board Completes Third Review Under Stand-By Arrangement with Serbia and Approves €360 Million Disbursement

March 31, 2010

The Executive Board of the International Monetary Fund (IMF) today completed the third review of Serbia’s economic performance under a program supported by a Stand-By Arrangement (SBA). The completion of the review enables the immediate release of SDR 319.6 million (about €360 million, or US$485.23 million). The Serbian authorities have indicated that they will draw only 50 percent of the purchase available under this review. This would bring total disbursements under the program to SDR 1.2 billion (about €1.3billion, or US$1.8 billion). The Board also completed the financing assurances review.

Serbia’s initial 15-month SBA was approved on January 16, 2009, for SDR 350.8 million (about €395.13 million, or US$532.6 million). The arrangement was extended by one year and augmented to SDR 2.6 billion (about €2.9 billion, or US$4 billion on May 15, 2009 (see Press Release No. 09/169) to support the government's economic program amid a sharper than expected impact from the global financial crisis.

The Executive Board also concluded the 2010 Article IV consultation with Serbia. A Public Information Notice and the staff report will be published in due course.

Following the Executive Board’s discussion on Serbia, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, said:

“Serbia continues to perform well under its economic program supported by the Fund’s Stand-By arrangement. The authorities’ policy response to the global financial crisis has helped contain its adverse effects on the Serbian economy: the output decline has been limited, while falling domestic demand has resulted in significant external adjustment.

“Fast-paced GDP growth in Serbia before the crisis came at the cost of growing external and financial stability risks. As the economy recovers, policies should be geared toward promoting more balanced medium-term growth. There is a need for stronger structural and fiscal policies to raise productivity, exports, and savings.

“The authorities’ spending-based adjustment strategy aims at reducing high structural fiscal deficits mainly by restraining the growth of public wages and pensions, while public investments will be increased to address long-standing infrastructure bottlenecks. Fiscal adjustment in 2009 was in line with the program, but was largely based on ad hoc measures that will need to be replaced by more durable spending reforms, such as the planned pension reform, and structurally sound reforms in the education, health, and administration sectors, while maintaining a well-targeted social safety net. The adoption of fiscal responsibility legislation should help maintain spending discipline.

“The Financial Sector Assessment Program Update concluded that the banking sector is well capitalized and highly liquid, and has successfully weathered the global financial crisis. However, supervisory challenges remain, including streamlining prudential rules and formalizing memoranda of understanding with key home supervisors. Foreign parent banks’ commitments under the European Bank Coordination Initiative are welcome, and the recent agreement to gradually phase out commitments is appropriate against the backdrop of a considerable easing of external financing pressures.

“To increase Serbia’s growth potential, structural reforms should be implemented, notably in the areas of public enterprise reform and privatization. Recent efforts to streamline business laws and regulations are welcome.”