IMF: Successful completion of first review of Serbia’s economic programme – robust growth supported by responsible economic policy, good policies expected to continue

On 20 December, the IMF Executive Board made the decision on the successful completion of the first review of Serbia’s economic programme, supported by the Policy Coordination Instrument (PCI). In light of effective implementation of economic policy measures and good macroeconomic results, the Board made the decision without an official meeting, which is a possibility used when assessed that a formal discussion is not needed.

According to the IMF Executive Board, vigorous economic recovery is underway in Serbia, supported by a large-scale and timely policy response and strong precrisis growth momentum. Already in Q1 2021, Serbia’s GDP exceeded its pre-crisis level. The IMF now projects even higher than initially forecast growth in 2021 and unchanged growth of 4.5% in 2022.

In its report, the IMF also highlights the importance of preserving the stability of the dinar exchange rate against the euro even during the pandemic – for the maintenance of overall consumer and investment confidence. The banking sector is assessed as well-capitalised and liquid and the financial system is healthy – as shown by all indicators, while the development of the capital market and continued dinarisation will serve as an important support to medium-term growth.

Governor Jorgovanka Tabaković stressed that the decision on the successful completion of the first review of the economic programme was expected. We did a lot even during 2021, which will also remain remembered as a pandemic year.

  • Cumulatively, Serbia will achieve one of the best results in Europe in terms of economic growth.
  • We needed three quarters to return to the pre-crisis level, while after the 2008 crisis, the pre-crisis level was reached only after four and a half years.
  • Private sector formal employment increased – it was 6.4% above the pre-crisis level in October, which is the highest level of private sector formal employment ever.
  • Compared to the start of the pandemic, the conditions of financing businesses, citizens and the government are even more favourable.
  • The NPL ratio was lowered to below 3.5%, while lending activity continues to fully support economic growth.
  • The dinar exchange rate against the euro is stable, the changes take place on the second decimal place.
  • FX reserves, as one of the most important pillars of current and future stability, are significantly higher relative to the pre-crisis level. At EUR 16.5 bn at end-November, they are by around EUR 3 bn higher than at end-2020, despite the pandemic.

The IMF Executive Board expects that with the gradual normalisation of demand and supply, inflation will return to the lower half of the target tolerance band in H2 2022, when the effects of the drought from this year will wane and energy prices will stabilise. It also states that the NBS initiated adequate and cautious tightening of monetary conditions through liquidity management and without changing the level of the key policy rate. In its report, factors of current inflation movements are assessed by the IMF as temporary and their indirect effects as limited. The NBS should be ready to respond in case of need, in order to ensure that inflation expectations remain anchored. Core inflation has been preserved within the target band, and medium-term inflation expectations remain anchored.   

“The priorities of the NBS are well-known – ensuring price and financial stability in the medium run, supporting the fastest possible growth of our economy and employment, encouraging further expansion of the export sector, and ensuring a favourable investment environment. Facing the challenges from the international environment, the NBS continues to finely calibrate each its decision. The flexibility of our monetary framework, which we have created, enables us to respond in the shortest time if so required by conditions”, stated Governor Tabaković.

In its report, the IMF underlines that the 2022 budget is well-balanced, envisaging: (1) further narrowing of the fiscal deficit to 3% of GDP; (2) moderate growth in public sector wages and pensions; and (3) continued high capital investment.

The risks going forward are considered to be generally balanced – on the one hand, robust economic recovery should continue, owing to private consumption and private investment; on the other hand, elevated uncertainty originates from weaker than expected recovery of Serbia’s main European trade partners, disruptions to supply chains, and rising global energy prices.

“The medium-term macroeconomic framework that the IMF projects for Serbia is pretty good and realistic. The framework projects medium-term growth of 4–4.5% and sustainable public finances, along with the improvement of all fiscal parameters. It also envisages the preservation of the country’s external position, which is within sustainable bounds – this is important for the defence against external shocks, continuity of high capital investment and FDI, as a reflection of trust in macroeconomic stability and a solid economic outlook. This means that one of the most important international financial institutions has once again recognised the continuity of pursuing a responsible economic policy, coordinated between the Government and the NBS, and that it expects the good policies to continue in the period ahead”, concluded the Governor.

(The new PCI was approved to the Republic of Serbia on 18 June 2021 over a 30-month period. It is of advisory nature and does not envisage the use of funds. The approved cooperation programme builds on the PCI which was successfully concluded in January 2021 and on Serbia’s partnership relations with the IMF.)

Governor's Office