IMF Reaches Staff-Level Agreement on a Precautionary Stand-By Arrangement with Serbia

Press Release No.11/319
August 31, 2011

An International Monetary Fund (IMF) mission, led by Albert Jaeger, visited Serbia during August 18-31, 2011, to conduct discussions on a Stand-By Arrangement (SBA) with the IMF.  At the conclusion of the mission, Mr. Jaeger issued the following statement in Belgrade:

“An IMF mission and the Serbian authorities have reached agreement, subject to approval by IMF Management and the Executive Board, on an economic program that could be supported by an SDR 935 million loan (about EUR 1.0 billion) under an 18-month precautionary SBA. The Serbian authorities have indicated that they do not intend to draw on the resources made available under the arrangement unless the need arises.

“The Serbian economy is gradually recovering from a severe downturn. At the same time, indications of slowing European growth and trade are clouding the outlook. We now expect real GDP to grow by 2 percent in 2011 and 3 percent in 2012. Inflation stands at about 12 percent, but is set to fall well into single digits by end-2011.

“The discussions concentrated on budgetary policies in 2011 and 2012. This reflected the need to establish the credibility of the new fiscal responsibility rules in a setting of still sizeable fiscal deficits that have to be financed on market terms. For 2011, it was agreed to target a deficit of about 4½ percent of GDP, in line with the fiscal deficit rule, mainly by cutting back expenditure allocations. The submission of a supplementary 2011 budget in line with the program will be a prior action for SBA approval.

“For 2012, the fiscal deficit rule requires to limit the deficit to a maximum of about 4 percent of GDP. With unchanged budgetary policies, there would have been a fiscal gap of about 2½ percent of GDP. The authorities intend to close the gap mainly through curtailing spending, including deep cuts in subsidies, net lending operations, and non-priority spending on capital and goods and services.

“Several steps to improve the investment climate have also been agreed, including reforms to better secure property rights and to improve the management of state-owned enterprises.

“Monetary policy will remain focused on inflation, while maintaining a managed floating exchange rate.”



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