IMF Executive Board Approves Stand-By Arrangement for the Republic of Serbia

Press Release No. 11/353
September 30, 2011

The Executive Board of the International Monetary Fund (IMF) has approved an 18-month Stand-By Arrangement for an amount equivalent to SDR 935.4 million (about US$1.5 billion1 or €1.1 billion) for the Republic of Serbia. However, the Serbian authorities intend to treat the arrangement as precautionary, and not to draw on Fund resources unless the need arises.

Following the Executive Board's discussion of Serbia on September 29, 2011, Ms. Nemat Shafik, Deputy Managing Director and Acting Chair, stated:

“The authorities’ economic program, supported by the Fund under the new precautionary stand-by arrangement, seeks to maintain macroeconomic and financial stability in a particularly uncertain global and regional environment. The program will help insure the Serbian economy against external shocks, anchor the fiscal responsibility framework, and address bottlenecks in the investment climate to promote employment creation.

“Serbia’s external position is more balanced than before the 2008–09 crisis, reflecting a much lower current account deficit and a more competitive exchange rate. Moreover, the central bank’s international reserves remain at a comfortable level. However, external risks, including risks of spillover from the regional financial turbulence, have increased.

“Fiscal policy will be based on the fiscal responsibility framework and meeting the program’s fiscal targets will require significant effort and perseverance. Additional fiscal adjustment may be needed if downside risks to growth materialize.

“The monetary and exchange rate policies in place have served the country well. The NBS has conducted monetary policy effectively, containing inflation expectations despite a recent surge in food prices. Reduced inflationary pressures may create room for further policy easing, but the National Bank of Serbia needs to remain vigilant to achieve its objective of bringing inflation back into its target band.

“The banking system remains liquid and well capitalized owing to cautious prudential policies pursued before and during the crisis. The NBS intends to continue improving the regulatory and supervisory framework in line with international best practice and plans to adopt the Basel II framework by 2011.

“The next government should accelerate the pace of structural reforms necessary to develop a more vibrant export sector and favor the transition to a sustainable job-creating growth model. This will require deepening the program’s reform agenda, which includes restructuring and privatizing state-owned enterprises, increasing labor market flexibility, and better guaranteeing property rights,” said Ms. Shafik.


Recent Economic Developments

Serbia’s GDP continued to expand in the first half of 2011, but there are signs that the recovery is stalling for now. With investment and exports as the main drivers, the estimated first-half year GDP growth (2¾ percent) was in line with previous projections. However, a large negative trade shock is percolating through the region, as reflected in a sudden drop-off in steel demand from regional trading partners.

Labor shedding in the private sector has continued. While the public sector has maintained its (high) employment level, the private sector has shed about 20 percent of its jobs since 2008. With a significant number of jobs in companies that are dependent on subsidies, the official statistics may still not fully capture Serbia’s labor market malaise.

Headline inflation has peaked, and the National Bank of Serbia (NBS) responded by reversing its policy stance. Headline inflation in April reached almost 15 percent, but has declined substantially since then on the back of a reversal of food price inflation, in turn supported by the good agricultural season and lower global commodity prices. The NBS reversed its policy stance in June, cutting the policy rate by 125 basis points in several steps, to 11¼ percent.

The dinar had appreciated considerably earlier in the year supported by portfolio investments attracted by high dinar yields, but with increased tensions in the euro area, and in line with regional peers, it subsequently lost much of its previous gains. Amid substantial volatility in the foreign exchange market, but also increased trading volumes, the NBS conducted only modest foreign exchange interventions.

Program Summary

The objectives of the new arrangement are to maintain macroeconomic and financial stability, while addressing key bottlenecks in the investment climate. To achieve

these objectives, the program provides additional insurance against external downside risks.

Serbia is still only partly integrated in the EU’s regional supply chain. Nevertheless, present trade links can quickly lead to a synchronized region-wide slowdown in trade that can hit Serbia’s exports hard. Serbia’s comfortable level of foreign exchange reserves, a flexible and competitive exchange rate, and relatively assuring indicators of bank funding risks may provide a sturdy first line of defense. Nevertheless, contagion risk from vulnerable regional economies is high, and the relatively large proposed access under the precautionary SBA is intended to reinforce Serbia’s financial buffers.

The Stand-By Arrangement also aims at anchoring the new fiscal responsibility framework. During the brief interlude between the previous and the new proposed program, parliament adopted a populist fiscal decentralization law that transferred additional taxes equivalent to about 1¼ percent of GDP to local governments without devolving commensurate spending responsibilities. This was done over the explicit objections of the Fiscal Council, illustrating that the new fiscal rules remain open to political challenge. Thus, the SBA would serve as a commitment device to protect the fiscal responsibility framework.

As far as concerns the mitigation of financial stability risks, the Stand-By Arrangement helps developing local financial markets to facilitate foreign exchange hedging and maintaining adequate liquidity and capital buffers in the banking system. In case a severe downside scenario materializes, the program would likely have to be adjusted to include a private sector involvement component, as under the previous Stand-By Arrangement.

In coordination with other international financial institutions, the program also seeks to soften up key growth bottlenecks, using a targeted and realistic structural reform approach that focuses on areas where IMF staff has some expertise and where a critical mass of ownership can be mobilized.

Serbia: Selected Economic and Social Indicators, 2006–12




2006 2007 2008 2009 2010 2011



(Percent change, unless otherwise indicated)



Real GDP

3.6 5.4 3.8 -3.5 1.0 2.0 3.0


Real domestic demand (absorption)

4.8 10.2 4.9 -9.0 -2.2 1.4 1.4


Consumer prices (average)

12.7 6.5 12.4 8.1 6.2 11.3 4.3


Consumer prices (end of period)

6.6 11.0 8.6 6.6 10.3 7.9 3.5


Import prices (dinars, average)

15.3 -2.8 13.9 4.4 16.0 4.3 7.1


Nominal gross wage

23.2 22.4 17.8 -3.3 7.5 10.1 7.0


Real gross wage

10.4 14.5 4.8 -10.5 1.2 -1.0 2.5


Registered employment

-3.4 -2.1 -1.7 -4.8 -5.2 -1.7 0.3


Unemployment rate (in percent)

21.6 18.8 14.7 17.4 20.0 22.2 22.4


Nominal GDP (in billions of dinars)

1,962 2,277 2,661 2,713 2,987 3,359 3,615



(Percent of GDP)

General government finances








44.2 44.0 42.8 42.3 41.0 39.2 39.3



45.8 45.9 45.5 46.7 45.6 43.7 43.1



41.1 40.5 40.9 42.5 41.1 39.5 39.2


Capital and net lending

4.6 5.4 4.6 4.2 4.5 4.2 4.0


Fiscal balance (cash basis)

-1.6 -1.9 -2.7 -4.5 -4.6 -4.6 -3.9


Structural fiscal balance 1/

-3.5 -4.2 -6.3 -5.0 -3.8 -3.3 -2.3


Gross debt

43.0 35.6 34.2 38.2 44.9 44.1 44.5



(End of period 12-month change, percent)

Monetary sector









Money (M1)

37.1 25.3 -3.8 8.7 -2.2 9.3 13.6


Broad money (M2)

38.4 44.5 9.6 21.8 13.9 20.7 11.1


Domestic credit to non-government

17.1 36.9 35.0 15.9 29.0 10.8 14.3



(End of period, percent)


Interest rates (dinar)









NBS repo rate

14.0 10.0 17.8 9.5 11.5


Deposit rate

5.1 4.1 6.4 5.1 5.6



(Percent of GDP, unless otherwise indicated)

Balance of payments









Current account balance

-10.2 -15.9 -21.4 -7.1 -7.2 -7.6 -8.8


Exports of goods

22.0 22.4 22.7 20.7 25.7 26.6 28.5


Imports of goods

43.3 45.7 48.7 38.5 42.2 42.0 43.2


Trade of goods balance

-21.4 -23.1 -26.0 -17.7 -16.5 -15.4 -14.7


Capital and financial account balance

32.0 18.4 16.7 11.1 2.8 7.6 7.2


External debt

63.3 61.8 66.7 79.4 82.2 75.3 70.1


of which: Private external debt

36.0 39.5 47.2 54.0 53.4 49.0 48.0


Gross official reserves (in billions of euro)

8.7 9.5 8.2 10.6 9.8 10.1 9.4


(In months of prospective imports)

6.6 6.3 7.7 8.6 7.0 6.5 5.8


(Percent of short-term debt)

294.5 268.4 162.3 200.7 186.2 158.8 137.1


(in percent of broad money, M2)

112.4 84.5 72.7 74.9 76.5 76.5 77.5


Exchange rate (dinar/euro, period average)

84.2 80.0 81.5 93.9 103.5


REER (annual average change, in percent;









+ indicates appreciation)

8.0 9.6 6.5 -6.8 -7.8 10.5 1.0

Social indicators






Per capita GDP (in US$)

3,958 5,336 6,616 5,642 5,233




Population (in million)

7.41 7.38 7.35 7.32


Absolute poverty rate (in percent)

8.8 8.3 6.1 6.9 9.2

Sources: Serbian authorities; and IMF staff estimates and projections.

1/ Fiscal balance adjusted for the automatic effects of the output gap both on revenue and spending.  

1 All amounts based on the SDR exchange rates of September 28, 2011.


Public Affairs    Media Relations
E-mail: E-mail:
Fax: 202-623-6220 Phone: 202-623-7100