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BELGRADE (Serbia), May 21 (SeeNews) - The International Monetary Fund (IMF) has reached staff-level agreement on policies needed to complete the second review under the 30-month Policy Coordination Instrument (PCI) with Serbia, it said on Tuesday.
The programme remains broadly on-track with all end-March 2019 quantitative targets met and most reform targets implemented, although some with delays, the IMF said in a concluding statement of a mission that visited the country in May 10-21.
"Growth in 2019 is projected at 3.5%, with a pick-up in growth 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 gross domestic product (GDP) is expected to widen modestly and remain fully covered by FDI," the IMF said.
The central bank's accommodative monetary policy stance and the recent relaxation of fiscal policy, with a deficit of about 0.5% of GDP targeted in 2019 and over the medium term, remains appropriate, while risks to the near-term growth outlook are tilted to the downside, the IMF said in the statement.
Ensuring opportunities for skilled workers within Serbia will be critical to limit brain drain as education and training opportunities to prepare students and workers for the modern economy will be key as well as regulations that address business needs, the IMF noted. "Improving the private investment climate through the better provision of public services and reduction of the grey economy should remain government priorities. Actions by the state to reduce its footprint can help improve competition and in this regard the authorities’ resolve to privatise Komercijalna Banka is welcome."
Plans to reintroduce a fiscal rule anchored on debt can help cement credibility and preserve hard-won gains, while also supporting private sector growth. Strong governance is critical, including anti-corruption efforts and providing legal certainty, while improving State Owned Enterprise (SOE) governance and efficiency can raise economic growth, the IMF said.
The agreement under the second review under the PCI is subject to approval by IMF Management and Executive Board. Consideration by the Executive Board is tentatively scheduled for mid-July.