The IMF team is calling for a reduction in the fiscal deficit and limited wage growth in the public sector.
The International Monetary Fund (IMF) team, led by Jan Kees Martein, held virtual meetings with the Serbian authorities from October 5 to 16, 2020, to discuss the fifth and final revision of the PCI instrument, the statement said.
– The implementation of the program generally went according to plan, and economic activity is recovering after a sharp decline in the second quarter of 2020 caused by the COVID-19 pandemic. Monetary and financial measures and the large fiscal package introduced in response to the crisis have played a key and positive role in supporting the economy. It is now expected that GDP will record a real decline of 1.5 percent in 2020, and then an increase of 5 percent in 2021 – said Martein.
These projections are also based on the latest data indicating a faster-than-expected recovery and update the projections published in the IMF’s World Economic Outlook on October 13.
– However, the forecast is still very uncertain, due to the unpredictable impact of the epidemic and the consequent adverse effects on the economy of Serbia and its trading partners. Inflation is still low and is expected to remain in the lower half of the NBS target corridor in 2021. The banking system has remained stable, liquid and well-capitalized, the statement added.
Tax revenues exceeded expectations at the time of the fourth revision of the PCI instrument, but expenditures will be higher as fiscal measures are extended and the realization of public investments will accelerate in the last quarter of this year.
In this context, the overall fiscal deficit is expected to be below 9 percent of GDP in 2020 and public debt to remain below 60 percent of GDP.
– The IMF team reached an agreement with the Serbian authorities on the key parameters of the budget for 2021. The budget needs to strike a balance between supporting economic recovery and maintaining fiscal responsibility. In the context of the current recovery of economic activity, for the budget that is currently being prepared, it would be appropriate to reduce the fiscal deficit to 3 percent of GDP, which would ensure a further decline in the share of public debt in GDP – it is estimated.
In order to open space for this and given the increased fiscal risks, among other things by state-owned companies facing difficulties and credit guarantees, it is important that the share of total public sector wage costs in GDP decline to more sustainable levels, after increased in the last three years.
– Therefore, in 2021, wage increases in the public sector should be limited. Pension increases should follow the agreed Swiss formula, and additional ad-hoc increases or payments should be avoided. It is necessary to carefully monitor the fiscal risks that come from state-owned companies, and possible support to these companies should be implemented transparently through the budget – the IMF believes.
Following some delays due to the pandemic, the implementation of structural reforms needs to be accelerated to ensure strong and stable growth in the medium term.
– Continued efforts are needed to strengthen the tax administration, manage public investments, as well as monitor and manage fiscal risks. Public sector wage and employment framework reforms, which are significantly delayed, need to be completed, the IMF added.
Improving corporate governance in public enterprises, including EPS, as well as the development of the capital market in Serbia, remain crucial.
– We welcome the progress made towards the completion of the privatization of Komercijalna Banka and support further efforts to privatize Petrohemija. Medium-term priorities aimed at creating conditions for faster growth of the private sector and approaching income levels in the EU also include strengthening the rule of law and improving the judicial system – the statement concludes, Srbija Danas reports.
