Serbia has completed a review with the International Monetary Fund (IMF) as part of its stand-by arrangement and has established a new agreement related to the Policy Coordination Instrument (PCI) for a three-year period, from December 2024 to December 2027.
The PCI is a non-financial arrangement aimed at supporting robust economic policies, according to the IMF’s statement.
Economic outlook
“The macroeconomic results for Serbia in 2024 are impressive, with projected growth of 3.9% increasing to approximately 4.25% in the following years,” stated Donald McGettigen, Head of the IMF Mission. Overall inflation has returned to the National Bank of Serbia’s target range, aided by a tighter monetary policy and declining energy and food prices, although core inflation remains high.
While overall inflation aligns with the NBS target, core inflation—excluding food, energy, and alcohol—has seen a slight uptick to 5.3% annually in September, up from 5.2% in August.
Fiscal policy
The fiscal deficit is anticipated to rise to 2.7% of GDP in 2024 to accommodate increased spending in infrastructure, social protection, and defense. However, due to effective fiscal revenue collection, strong economic growth, and a recent upward GDP revision, public debt is expected to decrease to around 48% of GDP by the end of 2024, according to the IMF.
Structural reforms and commitments
The new program aims to assist Serbia in implementing an ambitious agenda of structural reforms, focusing on fiscal measures and state enterprise and energy reforms. Under this agreement, Serbian authorities have pledged to keep the total fiscal deficit below 3% of GDP from 2025 to 2027, contingent on avoiding major negative shocks, which would support a gradual reduction in public debt.
To achieve these macroeconomic targets, the government has committed to adhering to fiscal rules established in 2022 regarding public sector salaries and pensions. They will also explore options for rationalizing and monitoring rapidly growing expenditure items in 2024. If fiscal pressures arise, authorities are prepared to prioritize public spending further.
Employment and technical assistance
The program will assist in public sector employment planning and pensions, while also providing technical support from the IMF to address personnel issues within the Tax Administration. It will help outline and operationalize the investment plan for the energy sector, enhance the financial sustainability of state energy enterprises, and prepare Serbia for the EU Cross-Border Carbon Adjustment Mechanism (CBAM).
Risks and resilience
The IMF has highlighted key risks to Serbia’s economic outlook, including external demand, foreign direct investment, and primary product prices, all of which are subject to uncertainty. Additionally, Serbia faces challenges from geo-economic fragmentation and the impact of climate change on agricultural production and economic activity.
To mitigate these risks, substantial buffers are necessary. Encouragingly, Serbia’s foreign exchange reserves and state deposits are high, while public and external debt levels remain sustainable, and the banking system is robust. The IMF emphasizes that prudent policies will provide essential additional buffers.
