July 5 (SeeNews) - The International Monetary Fund (IMF) said on Wednesday that Serbia’s economy has strengthened dramatically since the adoption of the economic programme supported by the stand-by arrangement (SBA), but there have been significant delays in the public sector reforms.
Contrary to expectations, the larger than planned fiscal tightening has been associated with increased growth, reflecting the confidence engendered by decisively tackling the public debt sustainability concerns, the IMF said in the concluding statement of the mission for the 2017 Article IV consultation and the seventh review under the SBA.
The unemployment in the country is falling sharply, along with the level of banks’ non-performing loans, while inflation has been maintained at low levels, the IMF said.
However, there have been significant delays in the reforms of some areas, notably in reforms of public administration, public services and state-owned enterprises (SOEs).
"While Serbia’s ranking in business surveys has risen markedly, improvements are still needed in areas such as streamlining and modernising tax administration, increasing transparency and predictability of public fees and charges, and ensuring a more efficient and independent judicial system," the IMF said.
Overhauling Serbia’s fiscal rules would help establish a credible anchor for fiscal policy and enhance public debt sustainability over the medium term. Continued strengthening monetary and exchange rate policy frameworks, and advancing the dinarisation strategy will enhance policy effectiveness and the resilience of the financial system, the Fund noted.
Notwithstanding recent declines, public debt is still elevated and fiscal risks stemming from SOEs are sizeable, so any fiscal overperformance in 2017 should be used to increase capital spending or to reduce debt faster. Continuing to contain these expenditures in the medium term would help provide fiscal space for addressing infrastructure gaps and targeted reductions in labour tax burdens.
The sizeable fiscal consolidation under the program and improved policy coordination have supported a substantial easing of monetary policy, reflected in markedly lower lending rates and a recovery of bank credit. Given Serbia’s improved fundamentals, increased exchange rate flexibility over the medium term will help develop the foreign exchange market and foster dinarisation, the IMF explained.
Serbia's central bank, the NBS, has successfully implemented a comprehensive agenda aimed at further strengthening the banking sector, reducing the high levels of non-performing loans, and harmonising the regulatory framework with EU standards. However, reforms of state-owned financial institutions have faced delays and need to be accelerated. Consideration should be given to developing capital markets and improving access to finance for entrepreneurs and SMEs, the IMF added.
An IMF mission visited Belgrade during June 22-July 4 for the seventh review of Serbia's IMF-supported funding programme.
The IMF said in April it expects Serbia’s economy to expand by a real 3.0% in 2017, up from its October forecast of 2.8% growth. The growth of Serbia's gross domestic product (GDP) is seen at 3.5% in 2018, the IMF said in the April edition of its World Economic Outlook report.