The International Monetary Fund (IMF) mission estimated that the real gross domestic product (GDP) for Serbia would decrease by three percent in 2020, stating that the authorities quickly implemented a well-designed package of measures to mitigate the consequences of the pandemic.
The IMF mission is expected to accelerate growth to six percent in 2021, but points out that space should be made to increase public investment, and given budget risks, the growth of pensions and salaries in the public sector in 2021 should be limited.
“Ad hoc pension increases and lump sums should be avoided,” the IMF mission said.
Public debt, which was declining before the pandemic, is expected to increase in 2020, but will remain below 60 percent of GDP and continue to move downward in 2021, the statement added. The fiscal package, which includes increased health spending, tax deferrals, wage subsidies, universal cash transfers, and state guarantees for bank loans to SMEs, is one of the largest among European countries in transition, the IMF said in a statement after online meetings with representatives of the Serbian authorities from June 24 to July 3.
“The National Bank of Serbia contributed to the response to the shock by lowering the reference interest rate and injecting liquidity into the banking system, as well as introducing a three-month moratorium on bank loan repayments and other measures to preserve monetary and financial stability,” the statement said.
According to their estimates, and given the projected economic recovery and the temporary nature of fiscal measures, it should be possible to reduce the fiscal deficit to about two percent of GDP next year.
The Head of Mission, Jan Kees Martijn, stated that the talks with the authorities were constructive and that an agreement was reached at the team level on the policies necessary for the completion of the fourth revision of the PCI arrangement. The agreement is to be approved by the IMF’s management and executive board.
The consideration at the Executive Board is tentatively scheduled for the second half of August 2020, said Martijn and pointed out that the realization of the program is generally in accordance with the agreement. The significant deterioration of the external and domestic economic environment caused by the COVID-19 epidemic, however, requires a change in the PCI targets for the rest of the program, which ends in January 2021, he added.
In this context, policies should continue to focus on supporting the economy during the crisis while preserving macroeconomic and financial stability, adequately managing risks and protecting vulnerable groups.
Martijn states that the implementation of structural reforms has been slowed down due to the pandemic, so reforms to strengthen tax administration, public sector wage and employment systems, corporate governance in public companies, and to develop the Serbian capital market remain vital.
“A thorough analysis of the price of electricity is needed in order to cover the costs. We welcome the progress made towards the completion of the privatization of Komercijalna Banka and encourage further efforts to privatize Petrohemija,” concluded Martijn, Nova reports.
