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IMF calls on Serbia to persevere in structural reforms

Author Radomir Ralev
IMF calls on Serbia to persevere in structural reforms IMF Author (bnm) License: all rights reserved.

BELGRADE (Serbia), July 22 (SeeNews) - Serbia’s economy has remained stable and growth in 2018 picked up to 4.3%, important reforms took place towards modernisation of the tax administration and privatisation of the largest state-owned bank, but the country remains vulnerable to spillovers from external developments, including weaker-than-expected growth in key trading partners, International Monetary Fund (IMF) said.

"Serbia’s macroeconomic performance, supported by the Policy Coordination Instrument, has been strong. Growth has been robust, public debt is declining, employment is rising, the financial sector is sound, and inflation is low. Continued strong program implementation and determined structural reforms are important to address the challenges and accelerate income convergence with the EU," the deputy managing director and acting chair of the IMF, Mitsuhiro Furusawa, said in a statement on Friday.

The IMF said in the statement that that it has concluded the Article IV consultation with Serbia and completed the second review of the country's economic performance under the Policy Coordination Instrument (PCI) on July 17.

IMF executive directors welcomed Serbia’s strong macroeconomic performance supported by the PCI, emphasising that continued commitment to strong policies and determined implementation of structural reforms is key to sustaining macroeconomic and financial stability, addressing external and internal challenges, fostering growth, and advancing the EU convergence agenda, the Fund said.

"Directors underscored that maintaining a strong fiscal position and further reducing public debt, while accommodating growth-enhancing measures is important. They highlighted that improving the quality and composition of spending is key for budget discipline and economic growth. Directors considered that implementation of a fiscal rule anchored on debt, reintroduction of pension indexation, reform of the wage system, and improvements in public employment frameworks, are important measures to bolster fiscal policy credibility."

The accommodative monetary policy stance, under the inflation targeting framework, has been appropriate and contributed to economic activity, while greater exchange rate flexibility over the medium term would help develop the exchange rate market, and enhance dinarisation, the global lender said.

"Directors noted that vigorous implementation of the reforms of state‑owned financial institutions is essential to improve efficiency and strengthen confidence. They noted the good progress in addressing the nonperforming loans (NPLs) and looked forward to the successful completion of the privatisation of the largest state‑owned bank in a transparent manner. Directors welcomed the authorities’ focus on improving capital markets and access to development finance."

Serbia's economic growth in 2019 is projected at 3.5%, with a pick-up expected during the second half of the year due to strong foreign direct investment (FDI), continued public investment, and assumed recovery in trading partner countries. Inflation will move within the lower half of the inflation target band, while the current account deficit as a share of GDP is expected to widen modestly and remain fully covered by FDI.

In July 2018, the IMF said it reached a staff-level agreement on a 30-month PCI with Serbia which includes reforms of the tax administration to help increase the efficiency of revenue collection and improve the business climate.