IMF mission completes fourth review under stand-by loan deal with Serbia.

By bne IntelliNews May 28, 2010
The IMF mission completed the fourth review under the stand-by loan arrangement between Serbia and the lender, and the country will be able to draw EUR 380mn in the next instalment, finance minister Diana Dragutinovic stated. We note that the IMF has given conditional consent for the disbursement of another loan tranche and in order to actually withdraw the funds, the Serbian authorities will have to submit a pension system reform plan to the parliament in the next two weeks and will have to continue with public administration cuts. If Serbia meets the two conditions, the IMF BoD will approve the withdrawal of funds in late June. After the assessment of economic environment in the country, the IMF has revised down Serbia's GDP growth forecast for this year to initially projected 1.5%, noting that there are downside risks to this forecast. The IMF mission Chief Albert Jaeger said the recovery was more sluggish than expected primarily due to Greek debt crisis, which has scared investors out of the region, and thus Serbia can expect deterioration of exports and investments. The country will face two more difficult years, the IMF official said. Jaeger has confirmed that the agreement had been reached on leaving both public sector salaries and pensions frozen this year, despite the calls of the authorities for unfreezing. Instead, both public sector workers and pensioners are set to receive one-off aid in late 2010 worth a total of RSD 6.5bn (EUR 60mn), which will be funded from privatisation proceeds. Since the economy is not performing as expected, the IMF will most likely allow increase in budget deficit to 4.8% of the GDP this year, instead of earlier planned 4%. Finance minister Diana Dragutinovic said the government would rely on local issuance to cover the budget gap, adding that Eurobond issue was not in line with the government's de-euroisation strategy. The budget will probably be revised in Q4, the finance minister added. Serbia and the IMF agreed EUR 2.9bn stand-by loan deal in May 2009. The arrangement will remain in place by mid 2011. So far, the country has withdrawn a total of EUR 1.3bn under the arrangement.

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