The program remains on track and the economy continues to strengthen. Significant fiscal over-performance and renewed efforts to address structural weaknesses have helped boost confidence. This, along with a healthy credit recovery on the back of substantial monetary policy easing, has helped restore robust growth, while persistently low inflation has reinforced recovery in real incomes. Public debt has started to decline.
The Executive Board of the International Monetary Fund (IMF) on December 16, 2016 completed the sixth review of Serbia’s economic performance under the Stand-By Arrangement (SBA). The completion of the review will make available the cumulative amount of SDR 662.575 million (about €850.8 million). The Serbian authorities have indicated their intention to continue treating the arrangement as precautionary.
The Executive Board approved the 36-month, SDR 935.4 million (about €1.2 billion at the time of approval) SBA for Serbia on February 23, 2015 (see Press Release No. 15/67).
Following the Executive Board’s decision, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, issued the following statement:
“The Fund-supported program is delivering positive results, underpinning macroeconomic management and structural reforms in Serbia. The economy continues to strengthen, supported by the authorities’ efforts to improve public finances, address structural weaknesses, and strengthen the financial sector. Employment is rising, inflation remains firmly under control, and public debt has started to decline. Full implementation and strong ownership of the reform agenda are critical to consolidate hard-won gains, improve the business climate, and support Serbia’s medium-term growth.
“Significant progress has been made on fiscal consolidation in 2016, on account of strong revenue and ongoing expenditure control. Institutional reforms aim to secure fiscal sustainability and improve public services. Priorities include eliminating domestic arrears, reforming the public administration and wage system, and strengthening public investment management. Further efforts are also needed to minimize fiscal risks through a restructuring of unviable state-owned enterprises, especially in the mining, energy, and transportation sectors, while enhancing social safety nets. The authorities are taking steps to strengthen public project appraisal and implementation, and modernize the educational system.
“The reduction in the inflation target reflects improved macroeconomic fundamentals and market confidence. The lower target should support the dinarization strategy and help reduce long-term interest rates. The current cautiously accommodative monetary policy stance remains consistent with the new target.
“Financial sector reforms have strengthened the resilience of the sector. The strategy for resolving nonperforming loans has helped reduce the overall bad loan ratio, and the authorities remain committed to its full implementation, especially with respect to state-owned banks.
“Serbia has achieved notable improvement in the business environment, but more needs to be done to boost investor confidence and medium-term potential growth. Particular efforts should be made to improve the court system, strengthen the quality of the judiciary process, and facilitate the use of effective out-of-court arbitration.”