On July 18, 2018, the Executive Board of the International Monetary Fund (IMF) approved a new 30-month Policy Coordination Instrument (PCI) for Serbia.
The PCI-supported program will build on the precautionary Stand-By Arrangement successfully completed in February 2018 and aims at maintaining macroeconomic and financial stability and advancing an ambitious structural and institutional reform agenda to foster rapid and inclusive growth, job creation and improved living standards. Program reviews will take place on a semi-annual fixed schedule. While the PCI involves no use of IMF financial resources, successful completion of program reviews will help signal Serbia’s commitment to continued strong macroeconomic policies and structural reforms.
Following the Executive Board’s decision, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, issued the following statement:
“Serbia has chosen to cement the success of its 2015-18 Precautionary Stand-By Arrangement with a new economic reform program focused on strengthening institutions and improving competitiveness for faster growth, which are critical to secure sustainable growth and faster convergence with EU living standards.
“The program maintains a strong fiscal position and foresees a continued decline in public debt, while also accommodating growth-enhancing measures. Increased public investment would likely deliver the strongest growth dividend, especially as Serbia continues to improve the selection, appraisal, and preparation of infrastructure projects. Targeted tax measures can also improve incentives for investment and employment and reduce informality.
“Monetary policy under the inflation targeting framework is reducing inflation and inflation expectations, while also supporting economic activity. With still elevated levels of euroization, full implementation of an updated dinarization strategy, including better agency coordination and allowing more short-term exchange rate flexibility, will strengthen monetary policy transmission and market development.
“Financial sector reforms will reinforce stability and improve intermediation. Efforts to reduce NPLs are yielding good results, but greater attention is needed to resolve bad assets of public financial institutions, including the development agencies and the Deposit Insurance Agency. Addressing AML/CFT weaknesses identified by FATF will be important for ensuring continued strong foreign investment and improving the business climate.
“Structural and institutional reforms will gradually strengthen Serbia’s potential growth, helping to prepare the country for EU accession. Priorities supported by the program include strengthened tax administration and public investment management, an improved business climate, reduced informality, and a recasting of the role of the state away from direct participation in the economy towards supporting a full market economy.”