IMF国际货币组织全球-Republic-of-Serbia_Staff-Report-for-the-2019-Article-IV-Consultation-and-Second-Review-under-the-Policy-Coordination-Instrument_117页_1mb

2019 Article IV Consultation and Second Review Under the Policy Coordination Instrument: Republic of Serbia

Core Content Summary

The International Monetary Fund (IMF) completed the 2019 Article IV Consultation and the second review under the Policy Coordination Instrument (PCI) for the Republic of Serbia on July 17, 2019. This review assessed Serbia's macroeconomic performance, fiscal and monetary policies, structural reforms, and risks to the program.

Main Points

Economic Performance

• Growth: Serbia's economy showed strong stability, with real GDP growth reaching 4.3% in 2018, the fastest pace in 10 years. Growth slowed to 2.5% in Q1 2019 due to base effects and weaker export growth.
• Fiscal Performance: The general government recorded a surplus of 0.6% of GDP in 2018 and 0.2% of GDP in Q1 2019, with public debt declining by about 15% of GDP since 2017.
• Inflation: Inflation remained low and stable, with headline inflation at 2.2% yoy in May 2019 and core inflation at 1.5%.
• Employment: Unemployment dropped to 12.7% in March 2019, while employment increased to 58.7% and informal employment remained below 20%.

Macroeconomic Stability

• Macroeconomic stability was maintained through strong fiscal discipline and low inflation.
• The financial sector remained stable, with non-performing loans (NPLs) at 5.5% of total loans as of end-March 2019, the lowest since 2008.
• The current account deficit was 5.2% of GDP in 2018, but was fully covered by FDI.

Structural Reforms

• Tax Administration: Reforms have advanced, improving the business environment and tax collection.
• Privatization: The privatization of the largest state-owned bank, Komercijalna Bank, is ongoing, with notable progress in addressing AML/CFT deficiencies.
• SOEs: Governance and performance of state-owned enterprises (SOEs) remain a challenge, with some still unresolved.
• Labor Market: Efforts to reduce the grey economy and improve the public wage system are critical to limit brain drain and enhance productivity.

Policy Recommendations

• Fiscal Policy: Continue fiscal consolidation, maintain surplus, and anchor fiscal rules to ensure sustainability.
• Monetary Policy: Enhance exchange rate flexibility over the medium term to develop the exchange rate market and promote dinarization.
• Financial Sector: Further reduce NPLs and reform state-owned financial institutions.
• Structural Reforms: Strengthen SOE governance, improve the private investment climate, and reduce the grey economy.

Key Information

• IMF Documents: The package includes a Press Release, Staff Report, Informational Annex, Staff Statement, and Statement by the Executive Director.
• Fiscal Balance: The general government fiscal balance was 0.6% of GDP in 2018, with a surplus of 0.2% of GDP in Q1 2019.
• Public Debt: Public debt fell to 54.5% of GDP by end-2018, a decline of 4 percentage points from 2017.
• FDI: Net FDI inflows reached 7.5% of GDP in 2018, the highest since 2012, and 2.5% of GDP in Jan-Apr 2019.
• Exchange Rate: The exchange rate remained broadly in line with fundamentals, but greater flexibility is recommended.
• International Reserves: Reserves increased to €11.5 billion by end-March 2019, providing a buffer against external shocks.

Risks and Outlook

• External Risks: Serbia remains vulnerable to spillovers from weaker growth in key trading partners.
• Internal Risks: Resistance to structural reforms and delays in resolving problematic SOEs pose challenges.
• Outlook: Growth is projected at 3.5% in 2019, with a pick-up expected in the second half of the year due to FDI, public investment, and recovery in trading partners.

Executive Board Assessment

• The Executive Board welcomed Serbia's strong macroeconomic performance and fiscal discipline.
• It emphasized the need for continued commitment to structural reforms and fiscal sustainability.
• Recommendations included improving the private investment climate, reducing the grey economy, and enhancing corporate governance of SOEs.

Conclusion

The IMF concluded that Serbia's macroeconomic performance has been robust, with fiscal discipline, low inflation, and improved employment. However, structural reforms and governance improvements are necessary to ensure sustained growth and convergence with the EU. The second review under the PCI was completed, and the establishment of quantitative targets for 4Q2019 was recommended.