Via IMF (Den Internationale Valutafond)

IMF Executive Board Completes Fourth Review Under the Policy Coordination Instrument for the Republic of Serbia







August 26, 2020











  • Due to the COVID-19 pandemic, Serbia’s real GDP is projected to contract by 3 percent in 2020 and is expected recover next year with growth at 6 percent.
  • To address the crisis, the authorities adopted stringent containment measures at an early stage and implemented a large policy package.
  • Containing fiscal risks and preparing contingency measures is critical given the highly uncertain economic outlook.

WASHINGTON, DC
– The Executive Board of the International
Monetary Fund (IMF) concluded the Fourth Review Under the
Policy Coordination Instrument (PCI) for the Republic of Serbia.

[1]

The PCI was approved on July 18, 2018 (see

Press Release No. 18/299
) and aims at maintaining macroeconomic and financial stability, while
advancing an ambitious reform agenda to foster rapid growth, job creation,
and improved living standards.

The COVID-19 pandemic is negatively impacting Serbia’s economic activity.
Growth is projected at -3 percent this year, compared to 4.2 percent in
2019, with lower external demand, weaker foreign direct investment and
remittances, disruptions in regional and global supply chains, and domestic
supply constraints. With the lockdown measures relaxed, the economy has
begun to recover, and growth in 2021 is expected to be at 6 percent. Risks
to the outlook are substantial given the uncertainty about the evolution of
the epidemic. The recent rise in infection rates in Serbia, though from low
levels, underscores these risks.

The authorities responded to the pandemic promptly by implementing
stringent containment measures and a large package of fiscal, monetary, and
financial sector measures. The policy measures were generally
well-designed, and appropriately aimed at providing lifelines to
households, preserving jobs, boosting healthcare spending, and providing
sufficient liquidity to the banking system and relief to borrowers.

While the immediate policy priorities have shifted to supporting the
economy through the crisis, the objectives of the PCI, which expires in
January 2021, remain ambitious and appropriate. The authorities and staff
agreed that going forward it will be critical to contain fiscal risks
including from troubled state-owned enterprises. Absent large economic
surprises, the fiscal deficit in 2021 should be contained to about 2
percent of GDP, with limited increases in public sector wages and pensions
while making room for higher public investment.

At the conclusion of the Board discussion on the fourth review of the PCI
for Serbia, Mr. Tao Zhang, Deputy Managing Director and Acting Chair made
the following statement:

“The COVID-19 pandemic is having a significant adverse impact on Serbia’s
economic activity. The authorities have launched timely and strong policy
actions. The near-term outlook remains subdued and is subject to
uncertainty. In this context, the authorities’ immediate policy priorities
have shifted to supporting the economy through the crisis.

“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.

“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.
Identifying fiscal risks stemming from the crisis will be important for
underpinning the execution of the budget and projecting funding needs.
Continued modernization of the tax administration will be needed to protect
the main revenue streams during the crisis and the subsequent recovery.

“Monetary policy has rightly been accommodative, and temporary
extraordinary measures have been adopted to help keep the banking sector
liquid and support borrowing. Inflation remains low and the exchange rate
stable. Continued monitoring of economic developments will be key to
preserve macrofinancial stability and limit balance sheet risks.

“Financial sector reforms should continue to support the recovery and
long-term growth. Priorities include completing the privatization of the
largest state-owned bank, advancing capital market development, and
supporting access to development finance.”



Table 1. Serbia: Selected Economic and Social
Indicators

2016

2017

2018

2019

2020

2021

2022

CR 19/369

Est.

CR 19/369

Proj.

CR 19/369

Proj.

Proj.

(Percent change, unless otherwise indicated)

Real sector 1/

Real GDP

3.3

2.0

4.4

3.5

4.2

4.0

-3.0

4.0

6.0

6.0

Real domestic demand (absorption)

1.4

3.9

6.5

4.6

5.2

4.0

-1.8

3.6

8.0

5.9

Consumer prices (average)

1.1

3.1

2.0

1.9

1.9

2.0

1.5

2.2

1.9

2.3

GDP deflator

1.5

3.0

2.1

3.3

2.5

3.4

3.8

3.4

2.3

2.4

Unemployment rate (in percent) 2/

15.9

14.1

13.3


10.9



Nominal GDP (in billions of dinars)

4,521

4,754

5,069

5,417

5,411

5,827

5,448

6,264

5,907

6,414

(Percent of GDP)

General government finances

Revenue 3/

40.8

41.5

41.5

41.4

42.1

40.2

38.2

39.8

41.1

41.4

Expenditure 3/

41.9

40.4

40.9

42.0

42.3

40.7

46.8

40.3

43.2

42.0

Current 3/

37.9

36.7

36.4

37.2

37.0

35.9

42.3

35.6

37.5

36.3

Capital and net lending

3.2

3.1

4.1

4.5

5.1

4.7

4.3

4.5

5.3

5.3

Amortization of called guarantees

0.9

0.6

0.4

0.2

0.2

0.1

0.2

0.2

0.4

0.4

Fiscal balance 4/

-1.2

1.1

0.6

-0.5

-0.2

-0.5

-8.6

-0.5

-2.0

-0.5

Primary fiscal balance (cash basis)

1.7

3.6

2.8

1.5

1.8

1.5

-6.6

1.5

-0.1

1.3

Structural primary fiscal balance 5/

1.7

3.7

2.8

1.8

1.6

1.6

1.1

1.6

1.1

1.1

Gross debt

68.9

58.7

54.5

52.7

52.8

51.4

59.8

47.8

57.0

53.2

(End of period 12-month change, percent)

Monetary sector

Money (M1)

20.3

9.7

20.1

10.7

16.3

9.7

6.0

8.6

12.2

11.1

Broad money (M2)

9.8

3.3

15.0

8.5

8.8

7.4

5.5

6.2

9.0

8.2

Domestic credit to non-government 6/

1.8

4.4

10.1

7.2

9.5

7.3

6.6

6.9

8.4

9.0

(Period average, percent)

Interest rates (dinar)

NBS key policy rate

3.3

3.9

3.1

2.3

Interest rate on new FX and FX-indexed loans

3.1

3.1

2.8

3.1

(Percent of GDP, unless otherwise indicated)

Balance of payments

Current account balance

-2.9

-5.2

-4.8

-5.9

-6.9

-5.3

-6.4

-5.2

-6.5

-6.3

Exports of goods

34.9

35.9

35.2

36.2

35.8

36.7

33.2

37.7

33.5

35.1

Imports of goods

-43.4

-46.1

-47.1

-49.2

-48.0

-49.3

-44.1

-49.7

-46.0

-47.8

Trade of goods balance

-8.5

-10.2

-11.9

-13.0

-12.2

-12.6

-10.9

-12.0

-12.6

-12.7

Capital and financial account balance

0.6

4.8

6.7

8.7

10.5

6.7

6.1

5.7

7.3

7.0

External debt (percent of GDP) 7/

76.5

68.9

66.1

58.4

66.2

54.7

68.6

51.1

65.3

61.5

of which:
Private external debt

29.4

29.7

30.9

27.5

31.7

25.7

30.3

24.3

29.0

27.4

Gross official reserves (in billions of euro)

10.2

10.0

11.3

12.5

13.4

13.2

13.2

13.5

13.6

14.0

(in months of prospective imports)

5.5

4.7

4.8

4.9

6.3

4.8

5.6

4.5

5.1

4.8

(percent of short-term debt)

345.2

200.3

193.9

191.5

250.8

201.7

247.9

205.7

255.8

262.5

(percent of broad money, M2)

58.7

53.2

52.2

54.2

57.8

53.1

57.2

50.4

54.8

52.0

(percent of risk-weighted metric)

113.1

117.7

123.1

117.7

121.3

116.4

120.8

118.0

Exchange rate (dinar/euro, period average)

123.1

121.4

118.3


117.9



REER (annual average change, in percent;

+ indicates appreciation)

-1.0

2.9

2.8


1.0



Social indicators

Per capita GDP (in US$)

5,756

6,284

7,246

7,445

7,382

8,086

7,458

8,787

8,442

9,210

Real GDP per capita (percent change)

3.9

2.6

5.0

3.9

4.5

4.4

-2.6

4.4

6.4

6.4

Population (in million)

7.1

7.0

7.0

7.0

7.0

6.9

6.9

6.9

6.9

6.9

Sources: Serbian authorities; and IMF staff estimates
and projections.

1/ SORS released revised national accounts in November
2018.

2/ Unemployment rate for working age population
(15-64).

3/ Includes employer contributions.

4/ Includes amortization of called guarantees.

5/ Primary fiscal balance adjusted for the automatic
effects of the output gap both on revenue and spending
as well as one-offs.

6/ At constant exchange rates.

7/ After CR19/369, domestic securities held by
non-residents are included in external debt. Historical
data were updated since 2015.




[1]

The PCI is available to all IMF members that do not need Fund
financial resources at the time of approval. It is designed for
countries seeking to demonstrate commitment to a reform agenda or
to unlock and coordinate financing from other official creditors or
private investors


IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Wafa Amr

Phone: +1 202 623-7100Email: MEDIA@IMF.org

@IMFSpokesperson








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