Officials of the International Monetary Fund (IMF) paid tribute to Serbia for the preserved economic and financial stability and progress of structural reforms in the conditions of the crisis, without the financial help of the Fund, in a striking text published today on the official IMF website.
The head of the IMF mission for Serbia, Jan Kees Martijn, and the IMF permanent representative in our country, Sebastian Sosa, pointed out in an interview with the IMF Country Focus that Serbia has maintained economic and financial stability and advanced structural reforms by implementing policies envisaged by the Policy Coordination Instrument (PCI).
They pointed out that the PCI arrangement between the IMF and Serbia, which expires in January, involved counseling and not financial assistance from the Fund, and that, although it required some adjustments due to the pandemic, it achieved its key goals.
“The key objectives of the PCI were to foster inclusive growth, preserve financial stability and assist the authorities in implementing ambitious structural reforms, including preserving the previously achieved improvement in the fiscal position,” Martijn said.
He added that this program was mostly ongoing when the Covid-19 epidemic broke out, which is why the PCI goals had to be adjusted to meet the challenges posed by the coronavirus.
Sosa emphasized that Serbia’s political response to resolving the economic and social effects of the pandemic was great.
“The fiscal package was among the largest in emerging European economies. It included increased spending on health care, wage subsidies, universal money transfers and a state guarantee scheme for bank loans to small and medium-sized enterprises,” he said.
The head of the Belgrade IMF office added that the National Bank of Serbia lowered the key interest rate, injected liquidity into the banking system and introduced a moratorium on loan repayments.
At the same time, he says, reforms to strengthen state-owned enterprise management and capital market development, as well as public sector employment and wage reforms, have been postponed, but good progress has been made in modernizing tax administration, strengthening public investment frameworks and monitoring and managing fiscal risks.
When asked how he explains that Serbia will have the smallest economic decline in Europe, Sosa reminded of the latest assessment of the authorities that the real reduction of Serbian GDP in 2020 will amount to only 1.1 percent.
“This smaller decline is the result of several factors. First, there is a strong momentum of growth before the crisis of 5.2 percent in the first quarter of 2020 compared to the same quarter of 2019,” he said.
As another factor, he cited the Serbian economy’s modest reliance on sectors such as tourism, as well as the relatively large share of agriculture and food industry in the structure of the economy less affected by the pandemic, and finally the “extensive pandemic policy response that supported businesses and jobs.”
Sosa mentioned that, despite the relatively small decline in economic activity, the impact of the pandemic is still significant, which is why GDP growth in 2022 is projected to be four percentage points lower than the one projected before Covid-19.
Regarding the fact that Serbia is one of the few Balkan countries that did not turn to the IMF for financial assistance during the pandemic, Sosa said that Serbia managed to meet its increased needs for financing on the bond market, both externally and domestically.
“After a short period of tightening financing conditions in April, Serbia managed to return to international markets in early May, issuing a two-billion-euro Eurobond. And in December, it successfully issued a ten-year, 1.2 billion dollars, relatively low-yield Eurobond,” he pointed out.
According to him, the costs of the fiscal response to the crisis, together with the decline in revenues due to reduced economic activity, raised the fiscal deficit to almost 9.0 percent of GDP in 2020.
“From an external perspective, Serbia’s balance of payments needs remained manageable, despite a sharp decline in remittances and foreign direct investment. Foreign exchange reserves remained largely stable during 2020,” Sosa added.
When asked what are the main economic challenges of Serbia in the future, Martijn said that it will be maintaining a solid economic recovery in 2021, when most of the crisis measures expire.
“Also, the uncertainty regarding the course of the pandemic and the delayed effects it can have on the financial health of companies and households is still very high, which may require additional measures to support the economy and vulnerable groups,” said the head of the IMF Mission to Serbia.
He also believes that structural reforms need to be accelerated in order to transform Serbia into a dynamic market economy led by the private sector, which will help the country prepare well for successfully joining the EU single market, which is the government’s long-standing ambition.
In the end, Martijn said that the Serbian authorities have expressed interest in further cooperation and a new program with the IMF, but that they have made it clear that they do not need financing from the Fund.
“Therefore, a successor to the PCI could follow, which could help Serbia recover from the pandemic. Such a program would support the continuation of policies to strengthen macroeconomic stability and resilience of the financial sector, while further implementing structural and institutional reforms,” he concluded, Kurir reports.
