September 6 (SeeNews) - The International Monetary Fund (IMF) said on Wednesday Serbia’s economy has strengthened impressively since the adoption of the economic programme supported by the stand-by arrangement (SBA), but continued reform efforts are needed to address remaining vulnerabilities and structural weaknesses.
Serbia has pursued a comprehensive reform agenda encompassing public enterprises and state owned enterprises (SOEs), public administration, the financial sector, and the business climate, the IMF said in the concluding statement of the mission for the 2017 Article IV consultation and the completion of the seventh review under the SBA.
Overall progress has been good, but there have been delays in some areas, notably in reforms of public administration, public services and SOEs, the IMF said.
The global lender pointed out that the Serbian economy is still overburdened by a large and inefficient public sector, with too little reliance on the productive private sector and the labour market is characterised by low participation rates, especially of women, and a high degree of informality. Future growth will thus depend on further improving the environment for private sector investment and employment growth.
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.
"Looking ahead, Directors considered that significant structural challenges and downside risks remain. They urged the authorities to solidify hard-won gains by continuing to build stronger institutions and making further ambitious progress on implementing the structural reform agenda, which are necessary to improve economic efficiency bolster private sector-led growth, and are essential aspects of the EU accession process," the IMF said.
Containing the non-discretionary current spending remains an important priority, according to the Fund. This is necessary to ensure that debt will remain on a declining path while creating fiscal space for needed capital spending and potentially for targeted reductions in tax burdens.
Broad exchange rate stability has reinforced confidence and helped reduce euroisation, but Serbia still needs to allow for day-to-day exchange rate flexibility, consistent with the inflation-targeting regime, the IMF said. Financial sector reforms under the programme have strengthened the resilience of the sector, helping to support future growth. Efforts to reduce non-performing loans (NPLs) need to continue, and reforms of state-owned financial institutions need to be accelerated, the IMF said.
Serbia’s business environment has strengthened, but impediments to private investment and growth remain, the IMF said. It added that Serbia needs to strengthen judicial processes, especially judicial independence and reduce delays in court decisions.