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IMF Executive Board Approves 30-Month Policy Coordination Instrument for Serbia

July 18, 2018

On July 18, 2018, the Executive Board of the International Monetary Fund (IMF) approved a new 30-month Policy Coordination Instrument (PCI) for Serbia. [1]

The PCI-supported program will build on the precautionary Stand-By Arrangement successfully completed in February 2018 and aims at maintaining macroeconomic and financial stability and advancing an ambitious structural and institutional reform agenda to foster rapid and inclusive growth, job creation and improved living standards. Program reviews will take place on a semi-annual fixed schedule. While the PCI involves no use of IMF financial resources, successful completion of program reviews will help signal Serbia’s commitment to continued strong macroeconomic policies and structural reforms.

Following the Executive Board’s decision, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, issued the following statement:

“Serbia has chosen to cement the success of its 2015-18 Precautionary Stand-By Arrangement with a new economic reform program focused on strengthening institutions and improving competitiveness for faster growth, which are critical to secure sustainable growth and faster convergence with EU living standards.

“The program maintains a strong fiscal position and foresees a continued decline in public debt, while also accommodating growth-enhancing measures. Increased public investment would likely deliver the strongest growth dividend, especially as Serbia continues to improve the selection, appraisal, and preparation of infrastructure projects. Targeted tax measures can also improve incentives for investment and employment and reduce informality.

“Monetary policy under the inflation targeting framework is reducing inflation and inflation expectations, while also supporting economic activity. With still elevated levels of euroization, full implementation of an updated dinarization strategy, including better agency coordination and allowing more short-term exchange rate flexibility, will strengthen monetary policy transmission and market development.

“Financial sector reforms will reinforce stability and improve intermediation. Efforts to reduce NPLs are yielding good results, but greater attention is needed to resolve bad assets of public financial institutions, including the development agencies and the Deposit Insurance Agency. Addressing AML/CFT weaknesses identified by FATF will be important for ensuring continued strong foreign investment and improving the business climate.

“Structural and institutional reforms will gradually strengthen Serbia’s potential growth, helping to prepare the country for EU accession. Priorities supported by the program include strengthened tax administration and public investment management, an improved business climate, reduced informality, and a recasting of the role of the state away from direct participation in the economy towards supporting a full market economy.”


Recent Economic Developments

Serbia has succeeded in addressing macroeconomic imbalances and restoring confidence. Supported by a three-year precautionary SBA successfully completed in February 2018, the authorities have restored fiscal sustainability, putting public debt on a firm downward path, and realigned the external position with fundamentals. Monetary policy has kept inflation under firm control, while supporting economic recovery and maintaining broad exchange rate stability. The confidence instilled by the improved macroeconomic situation has been reflected in rising investment, both from foreign and domestic sources, and supported an economic recovery.

The economic outlook remains positive. Growth reached 4.6 percent y-o-y in the first quarter and is expected to reach at least 3.5 percent in 2018, driven by consumption, investment, and exports. Inflation remains low, and is projected to be around 2 percent at end-2018, supported by the appropriate monetary policy of the National Bank of Serbia. Budget results for the first quarter of 2018 point to another year of fiscal surplus.

Nonetheless, Serbia remains susceptible to spillovers from regional and global developments and market volatility, including potential increased risk aversion for emerging markets. On the domestic front, delay in delivering on structural reforms, or erosion of fiscal discipline, could undermine confidence and reduce medium-term growth prospects.

Program Summary

The program is designed to maintain macroeconomic and financial stability, while advancing an ambitious structural and institutional reform agenda, to foster rapid and inclusive growth, job creation, and improved living standards. The authorities’ fiscal policy targets a small overall deficit from 2019 on, accommodating growth-oriented policies such as increased capital spending to address Serbia’s large infrastructure needs and some targeted reductions in the tax burden on labor and business, while supporting the reduction of public debt to about 50 percent of GDP by the end of the program.

The National Bank of Serbia’s (NBS) current state-contingent monetary policy stance remains appropriate in light of the domestic and external environment. The PCI aims to further strengthen coordination of liquidity management and promote dinarization. The authorities’ financial sector priorities include continued reduction of non-performing loans, reforming state-owned financial institutions, aligning financial regulatory and supervisory frameworks with EU standards, and addressing identified weaknesses in the AML/CFT framework.

Structural and institutional reforms focus on tackling the large shadow economy, further increasing labor market participation, and reducing the economic reliance on the public sector, including through public administration reforms and restructuring of state-owned utilities, enterprises, and financial institutions.

[1] The PCI is available to all IMF members that do not need Fund financial resources at the time of approval. It is designed for countries seeking to demonstrate commitment to a reform agenda or to unlock and coordinate financing from other official creditors or private investors. (See

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