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IMF Executive Board Completes Fourth and Fifth Reviews of Serbia’s Stand-By Arrangement

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The Executive Board of the International Monetary Fund (IMF) on August 31, 2016 completed the combined fourth and fifth reviews of Serbia’s economic performance under the Stand-By Arrangement (SBA). The completion of the review will make available the cumulative amount of SDR 608.01 million (about €761.6 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.

Following the Executive Board’s decision, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, issued the following statement:

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“Serbia’s economic recovery has exceeded expectations, supported by efforts to strengthen public finances, advance structural reforms, and boost investment confidence. However, vulnerabilities remain, including from elevated public debt and lingering structural challenges in an uncertain external environment. Full implementation of program commitments is critical to strengthen the foundations for robust and inclusive growth, restore public debt sustainability, and rebuild policy buffers.

“The fiscal over-performance has continued in 2016, supported by strong revenue and tight control of current expenditures. The challenge is to sustain the fiscal adjustment to place the high public debt firmly on a downward path. The completion of the first phase of public sector rightsizing will help contain the public sector wage bill in 2016, and further optimization will be guided by in-depth functional analysis. While the execution of capital expenditure has improved this year, measures are needed to strengthen the project appraisal process, enhance feasibility studies and risk analysis, and establish a single pipeline of public investment projects for the budget.

“The cautiously accommodative monetary policy stance is appropriate in view of strong fiscal consolidation and low inflation. The central bank’s continued commitment to the inflation-targeting regime and exchange rate flexibility is welcome.

“Positive momentum in the financial sector reforms needs to be maintained by fully implementing the non-performing loans strategy. In addition, it is critical to implement the reform agenda of the state-owned financial institutions to reduce financial vulnerabilities and fiscal risks.

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“Decisive implementation of the identified structural reforms is essential for reducing fiscal risks and supporting competitiveness and growth. While there has been good progress, full implementation of state-owned enterprise restructuring and resolution plans is needed to avoid further increase of fiscal risks and to achieve the program objectives.”

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