It took less than two full weeks for the President of Serbia, Aleksandar Vučić, to break a government promise made to the IMF mission. And, at the same time, to fulfil the one made to pensioners as his most loyal electorate.
In fact, the report on the third review of the advisory arrangement with this international institution, which was adopted in mid-June, clearly states that the Government of Serbia will refrain from extraordinary salary and pension increases.
According to this document, the Government promised that pensions would be adjusted exclusively in accordance with the regulating law, and that there would be no extraordinary payments, either in the form of bonuses or one-off handouts.
At the same time, a promise was made to the International Monetary Fund that the fiscal deficit would not exceed three per cent of GDP.
Yet, by the beginning of this month, Aleksandar Vučić unveiled the previously announced “new package” for pensioners. Aside from spa vouchers and cheaper medicines, Vučić’s new package includes a one-off payment to all pensioners in Serbia. This ranges from 35,000 dinars for those with lower pensions to a 20,000 dinar “treat” for those with high pensions.
Forbes Serbia asked the International Monetary Fund for its comment on these measures. Has the Government breached the agreement reached with the IMF, and what are the sanctions for doing so? How do such actions affect the future of the arrangement, which runs until the end of 2027?
What the IMF Says
Instead of concrete answers to these questions, an IMF spokesperson stated the following in a response to Forbes Serbia:
“The IMF will assess the announced package in due course within the context of the objectives and commitments undertaken under the Policy Coordination Instrument (PCI). As noted upon completion of the Third Review, prudence and predictability in economic policymaking remain critical to maintaining credibility. Fiscal policy under the arrangement is anchored by the programme’s fiscal framework, including compliance with fiscal rules relating to the budget deficit and pensions,” their response states.
In other words, the IMF expects the Government to respect the agreement reached regarding the rules on the deficit level and pensions. However, there is no answer as to what will happen if these rules are not met.
What are the rules?
Forbes Serbia’s interlocutors, who are well-versed in the negotiations and discussions with the IMF mission, say that this institution has no mechanism to impose concrete sanctions because this is an advisory arrangement rather than a financial one.
“If it were a financial arrangement, such actions would most likely result in a sanction preventing the withdrawal of the next monetary tranche. But in this case, the possible sanction is a warning during the IMF’s next mission to Serbia. The Government will receive a warning that it failed to respect the agreement – specifically, that a one-off payment occurred despite a promise that there would be none.”
Additionally, it is not entirely clear from Vučić’s measures whether an extraordinary permanent increase is planned, or if the president was actually referring to the regular statutory adjustment.
Economists believe it is the latter, but for electoral reasons, the president did not want to explain this explicitly. He thereby left the impression that there is a possibility of an extraordinary increase. At the very least, it implies that the regular adjustment will happen earlier than dictated by pension adjustment regulations.
How will the new package be funded?
As a reminder, besides promising to refrain from extraordinary pension increases and one-off handouts, the Government also committed to keeping the budget deficit below three per cent of GDP.
Our interlocutors, however, are not certain that such a plan will ultimately be achieved. A well-informed source says it is highly uncertain whether the state intends to fund the new pension package by cutting other expenditures. This involves, lest we forget, nearly 380 million euros.
The Government has two options if it wishes to implement this plan: reduce other expenditures, defer the payment of certain capital expenses in order to redirect that money towards funding the pension package, or increase the deficit, i.e., breach the maximum limit of three per cent of GDP.
Our source notes that there are already whispers about a budget rebalance. Such an outcome could mean the Government intends to increase spending, and therefore the budget deficit.
Everything will, most likely, depend on the authorities’ intentions regarding the timing of the elections.
“There is no doubt that the authorities will do whatever it takes to secure an election victory. Therefore, the possibility of a deficit higher than projected cannot be ruled out. The timing of the IMF mission’s next visit to Serbia will also depend on the election date,” our interlocutor says.
A higher deficit still won’t bring concrete sanctions
Nevertheless, even if the deficit turns out to be higher than promised to the IMF, it is difficult to expect a termination of the arrangement or concrete sanctions. The only possible sanction is reputational rather than tangible. Simply put, a future IMF report would look somewhat different from those seen so far.
Our source adds that if the state decided to permanently increase pensions outside of the legally prescribed adjustment framework, the IMF could request a correction.
In other words, during the next mission, they could demand that the increase be repealed and returned to its original level. However, since this involves a one-off payment, such a request might not be made, and the sanctions would amount to nothing more than a “slap on the wrist on paper”.
(Forbes Serbia, 06.07.2026)