IMF Completes First Policy Coordination Review for the Republic of Serbia

Program implementation is on track and structural reform momentum has generally been maintained.

With a strong economic recovery underway, Serbia’s real GDP is expected to grow 6.5% in 2021 and 4.5% in 2022.

The 2022 budget appropriately supports the economic recovery through high investments while marking a gradual return to fiscal discipline.

WASHINGTON, DC: The Executive Board of the International Monetary Fund (IMF) has concluded the first Policy Coordination Instrument (PKI) review for the Republic of Serbia. [1] The Management Board’s decision was taken without a meeting. [2]

The PCI was approved on June 18, 2021 (see Press release n Â° 21/189 ) and aims to support the recovery from the pandemic, maintain macroeconomic stability, and

anchor the medium-term fiscal policy framework, while pursuing the

reforms for more inclusive and sustainable growth.

A strong economic recovery is underway, Serbia’s real GDP growth is expected to rebound to 6.5% in 2021 and reach 4.5% in 2022. GDP has exceeded its pre-crisis level in the first quarter of 2021 and economic activity remained robust in the third quarter. , supported by household consumption and investment. Swift political actions, as well as low dependence on tourism and other high-contact sectors, and strong growth momentum at the onset of the crisis helped to limit the negative effects of the pandemic on the country. Serbian economy. However, Serbia remains vulnerable to the fallout from external developments, including a weaker-than-expected recovery in major European trading partners, supply chain disruptions and rising energy prices globally. The quantitative and reform targets for end-June 2021 have been met, as have the reform targets for end-September 2021, but with minor delays. The banking system has remained stable, liquid and well capitalized.

Headline inflation has been above the upper limit of 4.5% of the National Bank of Serbia’s target range since September, but is expected to fall back to the lower half of the inflation tolerance range in the second. half of 2022 as the effects of this year’s drought ease and energy prices stabilize. Faced with rising inflation and its uncertain outlook, the monetary authorities tightened monetary conditions in early October.

The 2022 budget envisions a reduction in the budget deficit to 3% of GDP, which will help ensure that public debt as a percentage of GDP returns to a clear downward trend, while continuing to support the recovery through public investment students.

[1] The ICP is available to all IMF members who do not need the Fund’s financial resources at the time of approval. It is designed for countries seeking to demonstrate their commitment to a reform program or to unlock and coordinate funding from other public creditors or private investors.

[2] The Executive Council makes decisions under its statute of limitations when the Council agrees that a proposal may be considered without convening formal discussions.

Table 1. Serbia: Main economic and social indicators, 2018-2024
		2018	2019	2020	2021		2022		2023		2024
				Prel.	CR 21/132	Proj.	CR 21/132	Proj.	CR 21/132	Proj.	Proj.

	(Percentage change, unless otherwise indicated)
Real sector
	Real gdp	4.5	4.3	-0.9	6.0	6.5	4.5	4.5	4.5	4.5	4.0
	Real domestic demand (absorption)	6.5	6.3	-0.9	5.8	5.1	4.5	4.9	4.5	5.1	4.3
	Consumer price (average)	2.0	1.9	1.6	2.5	4.0	2.6	4.9	2.6	3.5	3.0
	GDP deflator	2.0	1.9	1.3	3.0	7.0	2.4	2.5	2.6	3.0	3.0
	Unemployment rate (in percentage) 1 /	2.0	2.4	2.4	2.6	4.9	2.9	4.7	2.9	3.8	3.2
	Nominal GDP (in billions of dinars)	14.1	11.6	10.0	…	…	…	…	…	…	…
		5,073	5 422	5,502	5,942	6,147	6 389	6,725	6,868	7,295	7 831
	(Percent of GDP)
Public administration finances
	Turnover 2 /	41.5	42.0	41.0	41.7	43.6	41.4	41.7	41.6	41.7	41.8
	Expenses 2 /	40.9	42.2	49.0	48.7	48.5	44.4	44.7	43.1	43.2	42.9
	Current 2 /	36.4	36.9	42.8	40.9	40.3	37.2	37.0	36.5	36.2	35.9
	Capital and net loan	4.1	5.1	6.1	7.6	8.1	6.8	7.4	6.5	6.8	6.8
	Amortization of called guarantees	0.4	0.2	0.1	0.2	0.1	0.3	0.2	0.1	0.1	0.2
	Budget balance 3 /	0.6	-0.2	-8.0	-6.9	-5.0	-3.0	-3.0	-1.5	-1.5	-1.1
	Primary fiscal balance (cash basis)	2.8	1.8	-6.0	-5.0	-3.1	-1.1	-1.2	0.4	0.3	0.7
	Primary structural budget balance 4 /	2.8	1.5	-4.0	-0.3	-3.4	-1.6	-1.7	0.3	0.2	0.6
	Gross debt / 5	54.4	52.8	57.9	60.3	58.3	58.9	56.5	56.0	53.9	51.4

	(Change over 12 months at the end of the period, percentage)
Monetary sector
	Silver (M1)	20.1	16.3	36.3	11.8	11.4	8.4	9.0	8.0	8.6	7.9
	Broad money (M2)	15.0	8.8	18.4	9.1	10.6	7.8	8.4	7.5	8.1	7.4
	Domestic credit to non-governments 6 /	10.1	9.5	12.0	5.6	5.8	4.6	5.1	6.6	4.3	4.5

	(Period average, percentage)
Interest rate (dinar)
	SNB key rate	3.1	2.3	1.0	…	…	…	…	…	…	…
	Interest rates on new FX loans and indexed to FX	2.8	3.1	3.0	…	…	…	…	…	…	…

	(Percentage of GDP, unless otherwise indicated)
Balance of payments
	Current account balance	-4.8	-6.9	-4.2	-5.1	-4.1	-5.0	-4.3	-4.9	-4.3	-4.8
	Merchandise exports	35.2	35.7	34.3	39.3	39.1	40.3	39.2	40.8	39.0	39.4
	Goods imports	-47.1	-47.9	-45.4	-50.4	-49.5	-51.0	-49.5	-51.3	-49.3	-49.6
	Merchandise trade balance	-11.9	-12.2	-11.2	-11.2	-10.4	-10.7	-10.3	-10.5	-10.3	-10.2
	Capital and financial account balance	6.7	10.6	5.2	8.4	11.1	6.8	5.9	6.3	6.7	7.1
	External debt (percentage of GDP) 7 /	66.1	65.4	70.4	70.6	68.4	68.0	64.8	64.8	62.1	59.4
	of which: Private external debt	30.9	30.8	33.9	31.8	31.1	30.2	29.0	28.5	27.2	25.8
	Gross official reserves (in billions of euros)	11.3	13.4	13.5	15.2	17.1	16.1	18.0	16.9	19.5	21.0
	(in months of potential imports)	4.8	6.1	5.2	5.4	6.0	5.4	5.9	5.2	5.9	5.9
	(percentage of short-term debt)	195.3	408.9	412.3	463.6	523.2	493.1	551.4	516.3	594.8	640.5
	(percentage of broad money, M2)	52.2	57.7	57.3	60.3	65.7	60.1	63.6	58.7	63.9	64.5
	(percentage of risk-weighted metric) 8 /	111.2	126.1	126.0	129.0	139.3	130.3	138.7	129.6	142.4	146.3
	Exchange rate (dinar / euro, average of the period)	118.3	117.9	117.6	…	…	…	…	…	…	…
	RRSP (average annual change, in percentage;
	+ indicates appreciation)	2.8	1.0	1.5	…	…	…	…	…	…	…

Social indicators
	GDP per capita (in US $)	7 252	7 397	7,700	8 878	9,012	9 629	9,940	10 368	10,904	11 810
	Real GDP per capita (percentage change)	5.1	4.6	-0.4	6.4	6.9	4.9	4.9	4.9	4.9	4.4
	Population (in millions)	7.0	7.0	6.9	6.9	6.9	6.9	6.9	6.8	6.8	6.8

Sources: Serbian authorities; and IMF staff estimates and projections.
1 / Unemployment rate of the working-age population (15-64 years).
2 / Including employer contributions.
3 / Includes amortization of called guarantees.
4 / Primary budget balance corrected for the automatic effects of the output gap on both revenue and expenditure as well as one-off items.
5 / Excluding State guarantees on bank loans as part of the credit guarantee system set up in response to the COVID-19 crisis, estimated
at 1.1% of GDP as of August 15^e, 2021.
6 / At constant exchange rates.
7 / After CR19 / 369, domestic securities held by non-residents are included in external debt. Historical data has been updated since 2015.
8 / The risk-weighted metric is the IMF’s ARA metric for the fixed exchange rate. Serbia was reclassified to a stabilized exchange rate regime in 2019.

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IMF Completes First Policy Coordination Review for the Republic of Serbia

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IMF Completes First Policy Coordination Review for the Republic of Serbia

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