While the immediate policy priorities have shifted to supporting the economy through the coronavirus crisis, the objectives of the Policy Coordination Instrument (PCI) for Serbia remain ambitious and appropriate and going forward it will be critical to containing fiscal risks including from troubled state-owned enterprises, the International Monetary Fund (IMF) said.
“Going forward, and provided that the economy sees a gradual recovery as currently projected, budget planning should balance support to the economy with a gradual return to a sustainable fiscal stance. Fiscal space should be directed to public investment, which will be critical for supporting growth, while limiting increases in public sector wages and pensions,” IMF Deputy Managing Director Tao Zhang said in a statement on Wednesday, after the IMF completed the fourth review under the PCI for Serbia.
The PCI which will expire in January 2021, was approved in July 2018 and aims at maintaining macroeconomic and financial stability, while advancing an ambitious reform agenda to foster rapid growth, job creation, and improved living standards.
Identifying fiscal risks stemming from the crisis will be important for underpinning the execution of the budget and projecting funding needs and continued modernisation of the tax administration will be needed to protect the main revenue streams during the crisis and the subsequent recovery, Zhang noted.
The COVID-19 pandemic is negatively impacting Serbia’s economic activity, with growth projected at -3.0% percent this year, compared to 4.2% in 2019, with lower external demand, weaker foreign direct investment and remittances, disruptions in regional and global supply chains, and domestic supply constraints. Growth in 2021 is expected to be at 6%, the IMF said.
“The fiscal package introduced in response to the crisis is among the largest in the region, providing needed support to households and businesses, as well as higher health spending. Strong reporting and procurement practices are key for ensuring the effectiveness and proper oversight of this spending,” Zhang said.
Absent large economic surprises, the fiscal deficit in 2021 should be contained to about 2% of the gross domestic product (GDP), with limited increases in public sector wages and pensions while making room for higher public investment, according to the IMF, SeeNews reports.
