At its meeting held on 18 June, the IMF Executive Board concluded regular Article IV consultation and approved to Serbia a new Policy Coordination Instrument. Given the overall economic progress achieved by Serbia, the new programme of cooperation does not involve the use of financial resources either, but will be exclusively of an advisory nature.
Executive Directors praised the robust response of the Serbian authorities, which contained the impact of the pandemic and created foundations for economic recovery. The IMF assesses that macroeconomic stability that the authorities achieved by investing great effort in the pre-crisis period, along with a large-scale package of measures to curb the negative effects of the crisis, helped mitigate the economic fallout from the pandemic and helped Serbia record one of the best outcomes in Europe last year. “Given the significant progress that Serbia has achieved in the past eight years, the new programme will aim at preserving macroeconomic and financial stability, while supporting further implementation of structural reforms, in order to ensure even stronger and sustainable economic growth”, stated Governor Jorgovanka Tabaković.
Based on in-depth analyses carried out within regular Article IV consultations, it was assessed that Serbia has coped well with the COVID-19 pandemic and that economic recovery is expected to continue this year as well. In this context, and taking into account the excellent data for Q1 2021, real GDP growth in 2021 is estimated to reach 6% in 2021. Furthermore, as assessed by the IMF, the momentum recorded in Q1 2021, which turned stronger than expected, along with the impact of fast vaccination globally and in Serbia, where the vaccination rollout remains one of the fastest in Europe, creates room for an upside risk to growth in 2021.
“Despite the great challenges caused by the pandemic, with its vigorous response, Serbia has confirmed and strengthened its macroeconomic stability, as also established by the IMF’s in-depth analysis”, said Governor Tabaković.
Executive Directors assessed that accommodative monetary policy and financial sector policies remain appropriate and that the central bank, with its extraordinary measures, supported economic activity even during the pandemic. Inflation has remained low, with a stable exchange rate and well-anchored inflation expectations. “We have preserved confidence in monetary policy when it was the most important. Stability in the FX market has become a new reality, as well as low inflation, which together represent an important precondition of sustainable growth”, added the Governor.
As assessed by the IMF, the banking sector has remained stable, liquid and well-capitalised. Continued oversight of risks in the banking sector will be important as the crisis measures are gradually unwound. Directors particularly welcomed the plans for further encouragement of dinarisation and improvement of the capital market.
Directors also highlighted the need for continued policy support in view of still high uncertainty, while safeguarding macroeconomic and financial stability. They underscored the importance of preserving flexibility in the policy response and avoiding a premature withdrawal of support. It will also be important to maintain reform momentum to foster stronger, more resilient, and more inclusive medium-term growth.
The IMF assesses that the authorities’ full commitment to the implementation of planned structural reforms will support the potential for economic growth. It projects real GDP growth at 6% in 2021 for Serbia, continued high growth rates of 4.5% in 2022 and 2023, and 4% as of 2024. “The medium-term macroeconomic framework projected by the IMF for Serbia suggests that the implementation of good policies that will result in dynamic growth and its solid structure is expected to continue. The IMF projects continued low inflation, dynamic growth in exports and the rise in Serbia’s FX reserves, as well as the fiscal framework which, at the same time, ensures the reduction of public debt in GDP to below 50% in the medium run and supports the economy through high capital investment. The IMF expects Serbia to keep on justifying investors’ confidence, as testified by the projected continued high FDI inflows of around 6% of GDP, which will, as so far, fully cover the current account deficit”, concluded the Governor.
Governor Tabaković assessed that the new 30-month cooperation programme supported by the PCI builds on the previous one, which successfully ended in January this year, and proved excellent in practice. “With the new advisory programme, Serbia will continue the cooperation through a partnership relationship built and established with the IMF. The new programme is yet another confirmation of Serbia’s credible and successful economic policy, which we will continue in the coming period”, stated Governor Tabaković.
The advisory programme is aimed at supporting Serbia’s faster economic recovery from the effects of the pandemic, preservation of macroeconomic and financial stability, implementing an ambitious plan of structural reforms to encourage high, inclusive and sustainable growth in the medium run.
The reform priorities envisaged under the new PCI are a continuation of the economic policy and agenda of the Serbian Government. These priorities entail buttressing of the fiscal policy framework, strengthening governance of state-owned enterprises, further development of the capital market and advancement of dinarisation, as well as improved provision of social assistance and transition to the green economy.
The arrangement was approved for a 30-month period, and the implementation of the agreed economic programme will be monitored and assessed through five semi-annual reviews. “While the PCI involves no use of IMF financial resources, successful completion of program reviews will help signal Serbia’s commitment to continued strong macroeconomic policies and structural reforms“, states the IMF.
The PCI is of advisory nature and is available to all IMF members that do not need Fund financial resources at the time of approval. It is designed for countries committed to a reform agenda and is arranged in order to support an economic programme, provided the country has no current or potential balance of payments difficulties.
“The unanimous assessment is that Serbia had a strong response to the pandemic, and we were able to provide such a strong response because we had built stable and stronger Serbia which is invested in. During this crisis, our major task was to save people’s lives and to preserve the economy and already in the first quarter of this year our GDP exceeded its pre-crisis level, earlier than was the case in most other economies. Going forward, we continue to provide stability and support all those for whose sake we are working and all those with whom we are working – citizens and companies, because only together can we grow and make our country even stronger”, underscored Governor Jorgovanka Tabaković.