The latest revision of the stand-by arrangement with the International Monetary Fund (IMF) reveals more about Serbia’s plans for the coming period than the authorities have publicly shared. A significant development is the promise of increased transparency for state-owned enterprises and public capital investments. This commitment comes amidst a backdrop of previous unfulfilled promises by Serbian authorities over the past two decades to reform public companies and address public finance issues, highlighted by the recent troubles at the Electric Power Company of Serbia (EPS).
“In line with our commitment to transparency, we will publish all strategic and financial plans for EPS and Srbijagas,” states the IMF report, quoting a representative from Serbia. “We will also continue with the monthly reporting on the delays in claims against Srbijagas and EPS from their 20 largest debtors, including changes in these delays since January 2022. A strategic plan for the restructuring of EPS has been delivered.”
The restructuring plan for EPS, developed by its management and the Ministry of Energy with input from consultants, focuses on reform priorities in organizational and financial restructuring, human resources, procurement, project development, reporting, risk management, and environmental issues. However, the IMF acknowledges that implementing these reforms will take a long time due to previous failed attempts and the complexity of the changes required.
The continuation of management reforms in EPS is deemed crucial for successful restructuring. The appointment of permanent management positions is essential for tangible changes in EPS operations. Although the process of electing a new general director through a transparent procedure has been postponed, the authorities assure that the appointment will occur once a suitable candidate is found.
Reforms are also planned for Elektrodistribucija Srbije (EDS), the state electricity distribution company. The IMF emphasizes the need for strengthened management reforms, especially considering the significant investments in distribution networks financed by international loans under state guarantees. The Serbian authorities commit to implementing these reforms in accordance with the new Law on the Management of State Enterprises and will continue to monitor the adequacy of the network fees paid to EDS.
The Serbian government also plans to adopt an integrated national energy and climate plan, alongside an energy development strategy, as early actions of the new administration. Preparations for draft by-laws in line with the new Law on the Management of Public Enterprises are progressing with technical assistance from the IMF. This new law, aligned with the OECD Guidelines on Corporate Governance of State-owned Enterprises, will come into force in mid-September 2024, with some provisions lasting until early 2025.
In terms of public projects, the authorities have committed to ensuring that each ministry and public entity responsible for budgetary investment projects publishes project evaluation studies for signed investment projects worth over 20 million euros, except where confidentiality clauses apply. The Serbia 2027 website will be updated with additional information about the “Leap into the Future—Serbia” project. The Administration for Public Procurement will continue regular public reporting on all procurements, including those exempted from the regular procurement regime, and will disclose the grounds for such exemptions.
A new information system for managing public investments (PIMIS) will be upgraded in 2023 to include data on projects at all stages. By mid-2024, PIMIS will be expanded nationally and will aim to incorporate local and provincial capital projects by 2025.
For future projects not yet signed or budgeted, the authorities pledge to apply strengthened regulations on public investment management, supporting robust project preparation, prioritization, and selection. This includes comprehensive strategic assessments, public debt evaluations, and the inclusion of all government project loans in the budget. However, the need to prevent delays and assess project profitability remains unaddressed.
Regarding fiscal policy and borrowing, Serbia’s strategy for 2024-2025 relies on domestic and international sources, government cash deposits, and borrowing from international and bilateral partners. Funding for the 2024 budget is secured, with further debt securities issuances intended to pre-finance the 2025 budget. The aim is to increase the share of dinar debt over 30 percent over time. The legal framework for dinar securities auctions through Euroclear has been finalized, with the first auction planned for 2024, depending on market conditions.
The authorities anticipate that public debt will fall to around 52.1 percent of GDP by the end of 2024. Revenue surpluses and underutilized contingency reserves may be used to increase capital spending beyond the projected 7 percent of GDP, addressing Serbia’s significant infrastructure needs, including those related to Expo 2027. A revised budget will be presented in September 2024 to align with the ministries after the formation of the new government.
