IMF Completes Fourth Review Under Stand-By Arrangement with Serbia and Approves US$472.9 Million Disbursement

Performance under the program is broadly on track. Recent economic indicators suggest that growth momentum has stalled for now, and risks to the short-term outlook have increased. Fiscal policy should continue to aim at medium-term consolidation. The agreed exit strategy from the freezes on public wages and pensions is appropriate. The gradual monetary easing strategy pursued by the National Bank of Serbia (NBS) remains appropriate. Serbia is well placed to handle possible spillovers from Greece, but close monitoring is required. The plans to restructure and privatize public enterprises are commended.

Abstract

Performance under the program is broadly on track. Recent economic indicators suggest that growth momentum has stalled for now, and risks to the short-term outlook have increased. Fiscal policy should continue to aim at medium-term consolidation. The agreed exit strategy from the freezes on public wages and pensions is appropriate. The gradual monetary easing strategy pursued by the National Bank of Serbia (NBS) remains appropriate. Serbia is well placed to handle possible spillovers from Greece, but close monitoring is required. The plans to restructure and privatize public enterprises are commended.

The Executive Board of the International Monetary Fund (IMF) today completed the fourth review of Serbia’s economic performance under a program supported by a Stand-By Arrangement (SBA). The completion of the review enables the immediate disbursement of SDR 319.595 million (about €383.2million, or US$472.9million). Drawing the full amount would bring total disbursements under the program to SDR 1.50 billion (about €1.80 billion, or US$2.22 billion).

In completing the review the Board also approved Serbia’s request for a waiver of non-observance of the end-March quantitative performance criterion on the consolidated general government overall deficit. The Board also completed the financing assurances review.

Serbia’s initial 15-month SBA was approved on January 16, 2009, in the amount of SDR 350.8 million (about €420.6 million, or US$ 519.0 million). On May 15, 2009, the arrangement was extended by one year and augmented to SDR 2.6 billion (about €3.14 billion, or US$3.88 billion to support the government’s economic program amid a sharper than expected impact from the global financial crisis (see Press Release No. 09/169).

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

“Economic performance continues to be broadly satisfactory, in spite of a weaker macroeconomic environment during the first half of 2010. Serbia’s external financing position has improved markedly, the reserve position is broadly comfortable, and inflation remains in check. Notwithstanding these positive developments, Serbia remains vulnerable to adverse financial spillovers from the region.

“The authorities’ fiscal adjustment strategy continues to focus on medium-term consolidation. Automatic stabilizers will be allowed to operate in the short term in response to a shortfall in tax revenues. The planned fiscal responsibility legislation will further enhance policy credibility.

“The continued disinflation has allowed a gradual easing of monetary policy. Nevertheless, vigilance is called for, given still unanchored inflation expectations and the potential for increased pass-through of recent exchange rate depreciation. The authorities have developed a strategy for reducing risks from high euroization.

“The Serbian financial sector has proved resilient, and foreign parent banks’ exposures have remained stable despite the recent lowering of exposure limits under the Bank Coordination Initiative.

“The authorities remain strongly committed to the structural reform agenda aimed at improving the business environment, promoting private investment, and enhancing the country’s export capacity, including through privatization and upgrading of infrastructure.”

Republic of Serbia: Fourth Review Under the Stand-By Arrangement and Requests for Waiver of Non-Observance of End-March Performance Criterion and Modification of End-June Performance Criteria, and Financing Assurances Review
Author: International Monetary Fund