Abstract
This 2014 Article IV Consultation highlights that the Serbian economy is facing serious challenges. GDP contracted by an estimated 2 percent in 2014 on account of continued falling domestic demand aggravated by floods, and weak economic activity in trading partners. This, together with the low imported inflation, pushed Serbia’s inflation rate below the National Bank of Serbia’s inflation tolerance band, allowing some easing of monetary policy. To support their economic policies over 2015–17, the authorities have requested the IMF’s assistance. The program aims to restore public debt sustainability, strengthen competitiveness and growth, and boost financial sector resilience.
This statement provides information that has become available since the issuance of the staff report. The new information does not alter the thrust of the staff appraisal.
The preliminary 2014 fiscal deficit outturn was better than expected, although the improvement appears to be largely due to one-off factors. The augmented general government deficit was 6⅔ percent of GDP—lower than projected in the staff report (Table). Stronger revenues—both tax and non-tax—accounted for the largest part of the improvement, mainly because of one-off factors, such as extraordinary VAT payment from the power company due to higher flood-related electricity imports and unexpected dividends and fees from public enterprises (which were not related to a fundamental change in their financial position). In addition, capital expenditure was somewhat lower. As a result, staff assess that the structural primary fiscal deficit was marginally lower relative to the staff report. At the same time, public debt reached 72½ percent of GDP, somewhat higher than expected, mostly on account of exchange rate valuation effects and a smaller drawdown of government deposits.
The prior action on eliminating state aid to steel producer Zelezara Smederevo (ZS) has been met. In accordance with their program commitments, the authorities adopted a government Decision on February 17 to produce a management contract for this company, to allow operation of the company without state aid or accumulation of arrears.
The authorities have fulfilled a number of program commitments since the issuance of the staff report. On February 12, they have appointed a new head of Tax Administration. On February 8, the government adopted a Decision establishing a Working group for monitoring liquidity of the budget consisting of representatives of Ministry of Finance, the National Bank of Serbia, Public Debt Administration, the Tax Administration, and the Treasury. The functions of the Working Group include information exchange, analysis of budget execution reports, projection of revenues and expenditures and monitoring and analysis of cash flows.
Serbia: General Government Fiscal Operations (Program Scenario), 2013–14
(Percent of GDP)
Serbia: General Government Fiscal Operations (Program Scenario), 2013–14
(Percent of GDP)
| 2013 | 2014 | ||||
|---|---|---|---|---|---|
| SR | Prel. | ||||
| Total revenue | 37.9 | 39.4 | 40.0 | ||
| Tax revenue | 33.4 | 35.0 | 35.3 | ||
| Of which: VAT | 9.8 | 10.4 | 10.6 | ||
| Nontax revenue | 4.2 | 4.1 | 4.4 | ||
| Capital revenue | 0.1 | 0.0 | 0.1 | ||
| Grants | 0.1 | 0.2 | 0.2 | ||
| Total expenditure and net lending | 43.5 | 46.8 | 46.6 | ||
| Current expenditure | 40.8 | 43.0 | 43.0 | ||
| Capital expenditure | 2.1 | 2.6 | 2.5 | ||
| Net lending | 0.3 | 0.3 | 0.4 | ||
| Amortization of activated guarantees | 0.2 | 0.8 | 0.8 | ||
| Augmented fiscal balance | -5.6 | -7.5 | -6.6 | ||
| Public debt/GDP | 61.4 | 69.9 | 72.5 | ||
Serbia: General Government Fiscal Operations (Program Scenario), 2013–14
(Percent of GDP)
| 2013 | 2014 | ||||
|---|---|---|---|---|---|
| SR | Prel. | ||||
| Total revenue | 37.9 | 39.4 | 40.0 | ||
| Tax revenue | 33.4 | 35.0 | 35.3 | ||
| Of which: VAT | 9.8 | 10.4 | 10.6 | ||
| Nontax revenue | 4.2 | 4.1 | 4.4 | ||
| Capital revenue | 0.1 | 0.0 | 0.1 | ||
| Grants | 0.1 | 0.2 | 0.2 | ||
| Total expenditure and net lending | 43.5 | 46.8 | 46.6 | ||
| Current expenditure | 40.8 | 43.0 | 43.0 | ||
| Capital expenditure | 2.1 | 2.6 | 2.5 | ||
| Net lending | 0.3 | 0.3 | 0.4 | ||
| Amortization of activated guarantees | 0.2 | 0.8 | 0.8 | ||
| Augmented fiscal balance | -5.6 | -7.5 | -6.6 | ||
| Public debt/GDP | 61.4 | 69.9 | 72.5 | ||