Serbia reaches €2.4bn stand-by arrangement with IMF

Serbia reaches €2.4bn stand-by arrangement with IMF
Serbian officials hosting an IMF delegation in Belgrade in October. /
By Valentina Dimitrievska in Skopje November 2, 2022

Serbia will be able to get access to about €2.4bn from the International Monetary Fund (IMF) after the authorities reached a staff-level agreement on a 24-month Stand-By Arrangement (SBA), the IMF announced on November 2.

The SBA would replace the existing non-financial 30-month Policy Coordination Instrument (PCI), approved by the IMF in June 2021 and will build on the PCI reform agenda. The SBA still has to be endorsed by the IMF executive board, which is expected to consider it next month. The agreement was reached following a two-week visit by an IMF team led by Jan Kees Martijn to Belgrade.

“This arrangement would help address emerging external and fiscal financing needs given the challenging global economic environment and support the authorities’ macroeconomic policies and structural reform efforts, with a focus on the energy sector,” the IMF said.

Serbia intends to use the financing that will become available during the first part of the arrangement and to treat the remaining access as precautionary.

“After a strong recovery from the pandemic, Serbia is now facing headwinds from the adverse global and regional environment, including Russia’s war in Ukraine. GDP growth is projected to slow to about 2.5% in 2022 because of weaker external demand from EU trading partners along with higher energy prices, supply chain disruptions, and the recent drought, and to 2¼% in 2023,” Martijn said.

According to the IMF, Serbia’s fiscal deficit in 2022 is expected to exceed the original budget projection.

“Exceptional uncertainty dominates the near-team outlook with risks mostly to the downside. Yet, the Serbian economy has the buffers to withstand these risks, including adequate foreign exchange reserves, moderate external and public debt levels, a well-capitalized and liquid banking system, and a track record of timely policy responses to various shocks,” the statement said.

It added that the SBA would provide an additional buffer, while the authorities adjust policies and implement reforms to tackle the current challenges and strengthen the economy’s performance and resilience.

The IMF also warned that the exposed weaknesses in Serbia’s energy sector require complementary reforms to ensure energy security

“It will be equally important to restructure the energy sector, improve production and investment planning, and strengthen financial oversight and governance in the energy state-owned enterprises,” the IMF noted.