IMF confirms 4th and 5th review of arrangement with Serbia – Economic recovery exceeds expectations

Source: Tanjug/Beta Thursday, 01.09.2016. 10:23
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The Executive Board of the International Monetary Fund (IMF) has completed the combined 4th and 5th review of the Stand-by Arrangement with Serbia, noting that the country's economic recovery has exceeded expectations.

Deputy Managing Director of IMF Tao Zhang explained that efforts to strengthen public finance, improve structural reforms and increase investors' trust had led to good results.

He did note, however, that certain weaknesses remained, such as high public debt and challenges related to long lasting structural reforms in the uncertainty of external environment.

Zhang pointed out, as reported by the IMF, that, for this reason, a full implementation of measures defined by the program was necessary, as it would fortify the foundation for a healthy and all-encompassing growth and stabilize the public debt. Better fiscal results, he noted, have continued to be made in 2016, supported by higher income and strict expenditure control.

– The challenge is to keep adjusting fiscally and to redirect the public debt downwards – Zhang said.

The completion of the first phase of rationalization of the public sector will help keep salary expenditures in 2016 under control, he said, and further optimization will be led by in-depth functional analyses.

While capital expenditures have reduced this year, measures need to be taken to the end of improving project estimates, feasibility studies and risk analyses and establishing a “pipeline” for public investment projects in the budget.

Talking about monetary policy, he said that a cautious monetary policy was appropriate considering the strong fiscal consolidation and low inflation. - The National Bank continues to be dedicated to the regime of targeting inflation and flexible exchange rate, which is most welcome – he said.

(Photo: Ralf Kleemann/shutterstock.com)
The positive momentum in the financial sector needs to be maintained by fully implementing the non-performing loans resolution strategy, the report says. Furthermore, it is crucial to implement a reform agenda in the state's financial institutions in order to reduce financial weaknesses and fiscal risks.


– Decisive implementation of identified structural reforms in essential to reduction of fiscal risks and support to competitiveness and growth. While some progress has been made, on the one hand, a full implementation needs to be carried out when it comes to restructuring public enterprises and realizing the plans, in order to avoid increasing fiscal risks and to achieve the program's goals – he said.

Serbia signed the Stand-by Arrangement with the IMF, worth EUR 1.2 billion, in February 2015. Since then, the authorities have kept declaring that it is a precautionary arrangement and that they don't want to withdraw the money. The money not withdrawn and spent by Serbia becomes available for drawdown following the successful completion of reviews. After two combined reviews, Serbia will be given 608.01 million special drawing rights, which amounts to around EUR 761.6 million.
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