After Serbia successfully navigated the coronavirus (COVID-19) pandemic, the war in Ukraine is expected to weigh on the country's economic recovery this year, the International Monetary Fund (IMF) said on March 22 at the end of a staff visit to Serbia. 

The IMF plans to revise its growth projections downwards, but noted that it is difficult to forecast the magnitude of the impact at this stage. 

The fund warned that the war will affect Serbia “through supply chain disruptions, higher global commodity prices, effects on global financial conditions, confidence, and lower growth of trading partners”. 

It also pointed to higher global energy and commodity prices that will fuel inflationary pressure further this year. Inflation already incased to 8.8% in February, but core inflation was just 4.4%.

On the other hand, the IMF said that “Serbia’s medium-term outlook, while uncertain, remains favourable, supported by the authorities’ commitment to structural reforms”.

“Immediate policy priorities are to preserve macro-fiscal and financial stability and mitigate the impact of the ongoing external shock,” said Jan Kees Martijn, who led the visit to  Serbia. 

“The authorities appropriately formed a task force to help the affected companies navigate supply chain disruptions. Should economic disruptions warrant further support to the affected groups or activities, including the state-owned enterprises (SOEs) in the energy sector, the additional expenditures should be accommodated by reprioritising the budgeted current and capital spending, within the agreed 3% of GDP fiscal deficit ceiling. Any additional emergency assistance should be temporary and targeted to vulnerable households and viable firms. Financial support to the SOEs should be delivered in a transparent manner.” 

In the energy sector, the IMF stressed the need for a “rigorous reform of governance” in the main energy sectors. “The reform momentum should be maintained” for SOEs, the statement said. 

Concerning the country’s financial stability, the IMF said that the  banking system remains well-capitalised and liquid, and it welcomed the National Bank of Serbia’s quick response to international sanction-related spillovers on the banking system.

IMF staff held discussions with the Serbian authorities on policies to complete the second review under the Policy Coordination Instrument (PCI). “The IMF mission held productive discussions with the authorities and has made important progress towards reaching a staff level agreement on policies needed to complete the second review under the PCI,” said Martijn.