An International Monetary Fund (IMF) mission and the Serbian authorities have reached staff-level agreement on a 30-month Policy Coordination Instrument (PCI) supposed to support the country’s economic reform programme.
The deal was reached in Belgrade on June 13 but is subject to approval by the IMF’s management and executive board. Consideration by the executive board is tentatively scheduled for mid-July, the IMF said in a statement.
“The PCI is a new instrument introduced by the IMF in 2017 to support countries, such as Serbia, that can benefit from the policy framework provided under an IMF programme, but do not require IMF financial support,” explained James Roaf, who led the IMF mission, at the conclusion of his three-day visit to Belgrade on June 13.
“The PCI-supported programme aims at maintaining macroeconomic and financial stability and advancing an ambitious structural and institutional reform agenda to foster rapid and inclusive growth, job creation and improved living standards,” the Fund official added.
The IMF’s statement reads that under these policies, Serbia’s macroeconomic outlook remains strong. Growth reached 4.6% y/y in the first quarter of 2018, and is expected to reach at least 3.5% this year. Meanwhile, inflation remains low and is projected to be around 2% by-end 2018, supported by the appropriate monetary policy of the National Bank of Serbia (NBS).
Under the PCI, the IMF expects a continuation of results achieved during its previous three-year deal with Serbia which ended in February. Thanks to the precautionary €1.2bn stand-by arrangement (SBA), Serbia managed to stabilise its public finances, and last year reached its first budget surplus since 2005, as well as to putting its public debt on a steady downward trend.
“Fiscal policy under the PCI aims at preserving the hard-won gains to keep public debt on a firm downward path, while supporting stronger sustainable growth. We expect another year of fiscal surplus in 2018. For 2019 onwards, the programme targets a small overall deficit, aiming to reduce public debt to below 50% of GDP by the end of the programme, while providing space for an increase in capital spending and some targeted reductions in the tax burden on businesses and labour. It would also accommodate the unwinding of the crisis-era temporary pension cuts, and the transition to the new public wage system, while ensuring that the pension and wage bills do not increase as shares of GDP,” Roaf said.
Serbia’s consolidated budget surplus in 2017 stood at RSD52.3bn (€435.83mn) equal to 1.2% of GDP, the ministry of finance announced. The achieved amount is significantly better (by RSD127.5bn) compared to the RSD75.2bn planned deficit set in the SBA.
Meanwhile, Serbia’s general government public debt stood at RSD2,789.07bn or 58.6% of GDP at end-April, data from the ministry of finance’s public debt administration showed. The debt went slightly down in the fourth month of 2018, after it stood 59.1% of GDP at end-March and 57.9% of GDP at end-February.
Besides public finances, the PCI will also cover structural reforms in the country, which was the tough part of the SBA, and was never fully completed.
IMF claims that the new programme will advance a comprehensive set of public administration reforms. Completing the employment and wage system reforms will be critical for improving the efficiency of public services and containing current expenditure, the Fund said. Stronger public investment management frameworks will improve execution and reduce gaps in public infrastructure. Meanwhile, reforming the tax administration will help to increase the efficiency of revenue collection and improve the business climate.
“The implementation of a comprehensive set of structural and institutional reforms is aimed to improve the business environment to support higher private sector-led growth. Policy priorities include fighting the grey economy; further increasing labor force participation; reforming or resolving public and state-owned enterprises; and improving the quality and transparency of national statistics,” Roaf added.
Serbia’s Minister of Finance Sinisa Mali was positive after the meeting with Roaf’s team and said that Serbia has accomplished all conditions to sign the new deal with the IMF in July, reads the ministry’s statement.