End-of-mission press releases include statements from IMF staff teams conveying preliminary findings after a country visit. The views expressed in this statement are those of the staff of the IMF and do not necessarily represent those of the Executive Board of the IMF. Based on the preliminary findings of this mission, staff will prepare a report which, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.

• An IMF mission had productive discussions with the Serbian authorities on policies to complete the first review under the Policy Coordination Instrument (PCI).
• A strong economic recovery is underway, supported by the substantial policy response from the authorities and despite the recent resumption of COVID-19 cases. Structural reforms have continued to progress, but much remains to be done.
• The 2022 budget deficit is expected to narrow to 3% of GDP as the recovery continues to mature, which will help restore Serbia’s financial defenses.

Washington, DC: An International Monetary Fund (IMF) mission, led by Jan Kees Martijn, held virtual and in-person meetings with Serbian authorities from October 11-22, 2021, to discuss progress on the ICP. At the end of the mission, Mr. Martijn made the following statement:

“The IMF mission had productive discussions with the authorities on progress and policies to complete the first review under the ICP. We plan to finalize discussions on the 2022 budget in the short term. Successful completion of the review is contingent on meeting other program conditions and approval by IMF management and the Executive Board. The Board review is tentatively scheduled for December 2021.

“An economic recovery in Serbia is underway, supported by the substantial political response from the authorities. Despite the recent upturn in COVID-19 cases, GDP growth is projected at 6.5% in 2021 and 4.5% in 2022. Headline inflation rose to 5.7% in September, due to ‘a weak base effect and temporary factors, including rising energy. higher unprocessed food prices due to drought. Core inflation has remained relatively stable. Although the risks are high, inflation is expected to remain above the upper end of the SNB target range for the remainder of 2021 and return to the target range in 2022. The current account deficit is expected to narrow to around 4% of GDP this year. and remain fully funded by net FDI inflows. The banking system has remained stable, liquid and well capitalized. The exchange rate has remained stable.

“With rising inflation and its uncertain outlook, which is also present in many other countries, the National Bank of Serbia (NBS) judiciously tightened monetary conditions in early October by raising average repo rates in the interest rate corridor while maintaining the policy. unchanged rate. The SNB should continue to monitor the inflation outlook closely and stand ready to respond if necessary. “

“Fiscal performance was solid in 2021, boosted by an exceptional increase in tax revenue in a context of strong economic activity. Under the new supplementary budget, part of the revenue outperformance will finance much needed additional investment spending. In total, the public deficit for 2021 is expected to decline to 4.9% of GDP, or 2 percentage points of GDP lower than initially forecast, and will limit the increase in public debt resulting from the pandemic crisis.

“Rising international energy prices pose risks to inflation and economic growth. The current system of partially regulated energy prices in Serbia addresses the immediate negative impact on households. Possible measures to cushion the long-term negative effects of sudden increases in energy prices on businesses should be limited in time and scale, transparent and non-discriminatory, on the basis of objective criteria. The additional fiscal risks associated with state-owned enterprises should be avoided. In addition, efforts to promote energy efficiency must continue. If the rise in international energy prices were to persist, the increases would have to be passed on throughout the economy while protecting vulnerable households.

“The mission reached an agreement with the authorities on the key parameters of the 2022 budget currently under preparation. Given the ongoing economic recovery, it would be appropriate to reduce the 2022 budget deficit to 3% of GDP, putting public debt on a clear downward trajectory, thereby rebuilding room for maneuver to deal with future shocks. Wage increases in the public sector should be limited and structural pension increases should be guided by the existing indexation formula. It is important that the budget continues to ensure sufficient space for healthcare and keep capital spending above historic levels to meet Serbia’s considerable infrastructure needs and support a green recovery. The approval of a budget showing a deficit and a level of primary expenditure in this direction will constitute a preliminary action for the first revision within the framework of the ICP.

“Structural reforms continue to progress but important reforms remain to be implemented. Progress has been made in privatizing Petrohemija, improving budget reporting, strengthening fiscal risk management and strengthening state aid control. The implementation of the new capital market development strategy will be important to support domestic investment. We welcome the authorities’ commitment to address outstanding reform needs, including by introducing a new salary information system, anchoring medium-term fiscal discipline with a new set of fiscal rules, and continuing to enforce implementing the new SOE ownership strategy and ensuring a green recovery.

“The mission is grateful for the close cooperation of the authorities.