IMF, Serbia reach agreement on final SBA review.

By bne IntelliNews February 23, 2011
An International Monetary Fund (IMF) mission led by Albert Jaeger has reached an agreement with the Serbian authorities on completing the seventh and final review of the SBA, the lender said in a statement posted on its website. According to Jaeger, the program between Serbia and the IMF was performing well, with all end-December requirements under the program fulfilled and the 2010 deficit target met by a significant margin. The growth in economic activity has continued, and mounted to 1.75% in 2010 and is likely to reach 3% this year. However, the transition towards export-led growth is proving very painful, with smaller firms going through a particularly difficult adjustment, Jaeger added. In addition, employment in both the formal and informal segments of the private sector has dropped sharply. Inflation remained high during recent months, reflecting chiefly global and local food price shocks, but also past exchange rate depreciation. The NBS response was appropriately strong and consistent with bringing inflation back to the targeted band at the turn of 2011/12, the statement read. The latest talks between the IMF and the government focused on 2011 fiscal policy, against the backdrop of recent pressures for large and sustained public wage increases that could put fiscal and price stability at risk. The mission and the authorities also agreed that if consolidated central government revenues exceed budget targets, part of the higher revenues could be used later in the year for limited, one-off, and targeted payments to lower-income wage workers in the public sector and pension recipients. The 2011 budget already envisions a substantial increase in resources to protect the most vulnerable. The latest review is subject to approval by the IMF Management and Executive Board in late March. The approval would enable Serbia to draw another EUR 365mn under the SBA to support its external reserve position. We note that the government officials, including PM Cvetkovic announced earlier that Serbia would probably enter a precautionary arrangement with the IMF after the expiry of the current SBA in April.

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