Serbia 2012 GDP to fall 2.0%, 2013 budget gap target too ambitious - IMF

In October, the Serbian government said it was setting a budget deficit target equivalent to 3.3% of the projected gross domestic product (GDP) for 2013.

“The Serbian economy faces numerous challenges. The fiscal deficit has widened sharply in 2012 relative to the original budget and to last year’s level, and is unsustainably large. Public debt has also increased significantly. In addition, the external debt burden is high, inflation is volatile, and unemployment is elevated," IMF mission head Zuzana Murgasova said in a statement issued after a staff visit in Belgrade on November 13-20.

The IMF expects Serbia's GDP to contract by about 2.0% this year, with a modest recovery expected in 2013.

"Over the medium term, policies need to aim for a sustained, multi-year fiscal consolidation to reduce public debt below the legal ceiling of 45% of GDP, with a focus on expenditure rationalization," Murgasova said.

The IMF team discussed with the government in Belgrade recent economic developments, as well as the set of policies that could lead to an IMF-supported program.

The Fund welcomed the continued commitment to the inflation targeting framework and noted that the monetary policy tightening in recent months was appropriate to stem rising inflation expectations.

"This, alongside fiscal adjustment, should help lower inflation during 2013," the IMF said.