The International Monetary Fund (IMF) has commended Serbia’s progress in reducing its fiscal deficit and public debt, following the fourth revision of its stand-by arrangement (SBA). However, the IMF emphasized that the key challenge for Serbia in the coming period will be maintaining the fiscal deficit at or below three percent of GDP. The IMF also noted that the authorities’ request to transition to a 36-month Policy Coordination Instrument (PCI) will help solidify Serbia’s commitment to sound economic policies, continue reform momentum, and ensure fiscal discipline, particularly as the country shifts focus to large public investments under the Leap into the Future – Serbia Expo 2027 plan.
Progress made despite challenges
The IMF’s report highlights significant achievements under the SBA arrangement. Serbia managed to reduce its fiscal deficit and public debt, even in challenging conditions. The country’s financial position in the energy sector also improved, and its monetary policy led to inflation falling within the target range set by the National Bank of Serbia. Furthermore, foreign exchange reserves reached record highs. These achievements contributed to Serbia receiving an investment-grade credit rating for the first time in October 2024.
Despite these successes, the IMF identified the need for Serbia to maintain a fiscal deficit of no more than three percent of GDP through 2027. Achieving this will require careful management of public expenditures and fiscal discipline, particularly as Serbia continues to prioritize public investments. The IMF also stressed the need for continued structural reforms in state-owned enterprises, especially in the energy sector, to reduce fiscal risks and strengthen energy security.
Key challenges for the future
Looking forward, the IMF outlined several critical challenges for Serbia. One of the most pressing issues is improving public finance management, public investment management, and fiscal transparency. Effective management of public investments will be crucial to ensure that funds are spent wisely, especially given Serbia’s ambitious public investment plans.
Additionally, the IMF emphasized the importance of continuing reforms in public sector employment, particularly within tax administration and state-owned enterprises. These reforms are essential for improving efficiency and reducing fiscal risks. The IMF also urged Serbia to maintain a prudent monetary policy to mitigate inflationary pressures and preserve financial stability. Efforts to diversify Serbia’s trade and investment partnerships are also seen as vital for the country’s long-term growth, despite the challenges in aligning foreign policy with the European Union.
Serbia’s commitment to reform and stability
The IMF report includes a Letter of Intent from the Serbian authorities, signed by Prime Minister Miloš Vučević, Governor Jorgovanka Tabaković and Finance Minister Siniša Mali. This letter outlines Serbia’s commitment to continuing reforms and maintaining macroeconomic stability. The Serbian government plans to cancel its existing standby arrangement and seek approval for a 36-month PCI to further demonstrate its commitment to sound policies and fiscal discipline.
As part of the reforms, Serbia is committed to strict adherence to public sector wage rules, limiting wage increases to inflation and productivity growth. The government also pledged to continue its policy of gradual pension reform, including adherence to automatic pension indexation rules, which will ensure that pensions rise only with inflation and a 50 percent increase in the average salary. Additionally, the Serbian authorities announced plans to gradually increase the age limit and length of service for early retirement, aiming to align early retirement with regular retirement conditions.
Ensuring long-term stability
These measures are intended to ensure fiscal sustainability, streamline the public sector, and maintain the long-term stability of the pension system, all of which are essential for Serbia’s macroeconomic stability. By addressing these challenges and continuing with its reform agenda, Serbia aims to foster sustainable economic growth and enhance its financial stability in the medium term.
