Serbian Finance Minister, Siniša Mali, says that the Board of Executive Directors of the International Monetary Fund (IMF) has confirmed that the first review of the results of the stand-by arrangement with Serbia was successful and added that that was another validation of the right direction of the Serbian economic policy and the structural and institutional reforms that are being implemented.
In its statement, the IMF says that “the Executive Board of the International Monetary Fund (IMF) concluded the 2023 Article IV consultation and first review of the Stand-By Arrangement with the Republic of Serbia. An additional SDR164 million (over €200 million) is available to purchase, which would bring a cumulative drawing to SDR949 million (around €1.2 billion).”
The IMF goes on to say that “Over the last decade, Serbia has, despite external shocks, achieved impressive economic results reflecting its strong economic policies. Such policies supported strong growth, low inflation, and declining public debt. As a result, incomes rose, employment increased, and poverty declined. Large and diversified FDI inflows more than covered the current account deficit. The Covid-19 pandemic affected growth, but the economy quickly recovered in 2021 with the support of a strong package of policy measures.
Nevertheless, spillovers from Russia’s invasion of Ukraine and domestic problems, primarily in the energy sector, hit the economy hard. A sharp increase in international energy prices, domestic electricity production problems, and tightening global financial conditions led to an increase in fiscal and external financing needs in 2022. Under a Fund-supported Stand-By Arrangement (SBA), macroeconomic imbalances have already started to decline, and foreign exchange reserves are at an all-time high.”
The IMF is critical of the high inflation rate in Serbia and says “Headline inflation, however, at 15 percent in May, remains well above target and core inflation remains in double digits. Conditional on tighter monetary policy, which likely requires further policy rate increases, inflation should decline to around 8 percent by the end of the year and is projected to return to within the National Bank of Serbia’s target band in 2024. The projected fiscal deficit, which is not expected to exceed 3 percent of GDP in 2023, will support disinflation and further public debt reduction.”
The IMF also predicts that Serbian economic growth is expected to decline to 2% at the end of 2023, and adds that “tighter monetary and fiscal policies, still-high inflation, and weak external demand and tightening global financial conditions all weigh on the country’s economic activity. Over the medium term, growth should return to a potential 4 percent. The current account deficit is expected to narrow to around 4½ percent of GDP as energy import prices fall and export volumes continue to grow.”
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