This 2005 Article IV Consultation highlights that macroeconomic imbalances in Serbia and Montenegro widened in 2004, putting at risk some of the impressive earlier achievements. Growth, about 5 percent in nonagriculture since 2002, has been fueled by a surge in domestic demand. Lack of competitive domestic production has led to increased imports and a widening current account deficit. The main policy challenge is to maintain macroeconomic stability while accelerating structural reform. Fiscal policy needs to be tightened substantially, and its flexibility increased by reducing the large share of nondiscretionary spending.
Economic performance in 2002 was generally favorable with good policy implementation, but considerable risks remain. Structural reforms have fallen behind program expectations, but the delays are being addressed. The discussions highlighted the need for prudent policies and strengthening of structural reforms. The structural reforms will focus on tax administration and expenditure management, banking supervision and resolution, and privatization. Monetary and exchange rate policies in Serbia should continue to balance the inflation and external objectives. Serbia and Montenegro's performance under the Extended Arrangement has remained good.
International Monetary Fund. External Relations Dept.
In the decade following the fall of the Berlin Wall, Baltic and central European countries made huge strides toward meeting one of history’s most daunting challenges: the rapid transition from central planning to a market-based economy. But what now? In separate studies, two IMF teams examined the strategies these countries are adopting, particularly relating to macroeconomic and financial sector policies, in the run-up to European Union (EU) accession and, later, monetary union. Jeremy Clift of the IMF’s External Relations Department spoke to four of the authors—Robert A. Feldman and C. Maxwell Watson, who looked at five central European states, and Johannes Mueller and Christian Beddies, whose new publication covers the Baltic economies—on the groundwork needed for EU accession.
The new government of the Federal Republic of Yugoslavia has formulated and started to implement an ambitious program of stabilization and reform with impressive speed and commitment. The program provides for macroeconomic policies designed to reduce inflation and support reconstruction coupled with bold reforms. The policy achievements so far have been impressive. Prudent policies alone cannot ensure progress toward sustainable growth and external viability. The program sets the basis for the country in achieving sustainable output growth and a viable external position.