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Positive evaluations after the visit of the IMF Mission, the focus is still on EPS and Srbijagas

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The mission of the International Monetary Fund (IMF) has completed the first review of the standby arrangement with Serbia, which is implemented from December 2022 and lasts for 24 months. So far, as stated by the Ministry of Finance, all goals for the given period have been completed. The IMF also made a statement, pointing out the importance of reforming the energy sector and “further adjustment of energy tariffs”.

According to Finance Minister Siniša Mali – “The IMF is satisfied with the progress of the program, as well as the state of the Serbian economy, which has shown resilience in challenging times.” The IMF Board of Directors is expected to approve the first revision of the arrangement in June.

“The praise of the IMF, as one of the most important financial institutions in the world, gives credibility to our economic policy and shows that we are on the right path.” The representatives of the fund praised our macroeconomic results, with special emphasis on the level of foreign direct investments, which is a record, and pointed out that our economy proved to be resistant to external shocks. Our only challenge now is inflation, which we expect to halve by the end of the year. In this context, further good coordination of fiscal and monetary policy is important to us,” said Mali, according to the ministry’s announcement.

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He said that the absolute priority of the Government at the moment is the restructuring of the energy sector, which is an important part of the arrangement with the fund. “We are preparing an investment plan for the energy sector, with defined priorities and projects that can be implemented over the next few years. It will further boost our industry and accelerate GDP growth. So, we have done a lot, but there is still a lot of work ahead of us. We have to invest in energy, in the green agenda, but also to continue with further investments in road and railway infrastructure and especially education. It is important that we find new sources of growth,” said Minister Mali.

He added that part of the agenda with the IMF is the restructuring and professionalization of state-owned enterprises. The Law on the Management of Companies Owned by the Republic of Serbia is also being prepared, which passed a public debate in December and is now undergoing further harmonization.

IMF: Further adjustment of energy tariffs is necessary

“Deep-rooted weaknesses that have been discovered in Serbia’s energy sector require comprehensive reforms to ensure energy security and reduce related fiscal risks.” Achieving these goals requires further adjustment of energy tariffs. “Such adjustments should be complemented by efforts to expand the implementation of programs to protect energy vulnerable consumers and to increase the share of households that benefit from lower energy bills,” the IMF said.

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The Fund’s press release points out that, after years of insufficient investment, the need to invest in energy is great. “It will be important to finalize and adopt by the end of May, as agreed within the program, a priority investment plan in the energy sector with full costs with projects that will increase energy security, stabilize electricity production and save energy.” “Investments in green infrastructure to accelerate the green transition would support the resilience of Serbia’s growth model, which relies heavily on foreign direct investment,” said the IMF. Other structural reforms of the energy sector are also critical, according to the IMF.

“We welcome the government’s commitment to “transfer” the state-owned Elektroprivreda Srbije (EPS) to a joint-stock company. We also welcome the commitment to prepare a strategic plan for the restructuring of EPS by the end of 2023 and to complete the separation of the state-owned Srbijagas by the end of 2024,” the IMF stated in its statement. The key, he points out, is the strengthening of management in state-owned energy companies.

“The new law on state-owned companies (the Law on the Management of Companies Owned by the Republic of Serbia) is a key point of these reforms. The law should be aligned with OECD guidelines on the corporate governance of SOEs and should delegate the management of SOEs to professionals while limiting government involvement in the day-to-day operations of SOEs. In accordance with the obligations from the standby arrangement, the law should be adopted soon in order to support the transformation of state-owned enterprises as a whole, and energy enterprises in particular,” indicated the IMF.

NBS: Year-on-year inflation at the end of the year is half as low

The National Bank of Serbia pointed out in a statement on the occasion of the end of talks with the IMF that the Serbian economy has proven its resilience even in very unfavorable conditions, which are characterized by high prices of food and energy on the world market, slow growth of trading partners and tightened global financial conditions. The central bank published details of the conclusions from the two-week talks with the IMF on its website. “Despite great turbulence on the world market, the dinar strengthened by 0.2 percent against the euro at the level of 2022, and we have preserved its relative stability in the current part of the year.” Despite all the challenges, the country’s foreign exchange reserves are at a record level – 21.2 billion euros at the end of February. With the record net inflow of foreign direct investments of 4.4 billion euros last year, for the eighth year in a row, the current deficit was fully covered by the highest quality inflows.

We estimate that interannual inflation at the end of the year will be twice as low as the current one, and we expect it to enter the target limits in the middle of 2024, while the probability of this happening even earlier is increasing,” said NBS Governor Jorgovanka Tabaković.

She pointed out that the real growth of the gross domestic product is expected in Serbia between two and three percent this year, and from 2024 its acceleration to the range of three to four percent, and then a return to the pre-pandemic growth path of around four percent per year.


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