Karachi, The International Monetary Fund’s Executive Board has successfully concluded the second review under the Stand-By Arrangement (SBA) for the Republic of Serbia, providing access to approximately EUR 400 million. This development marks a significant step for Serbia, as the authorities plan to treat the SBA as precautionary from this point forward, an approach taken one review earlier than initially planned.
According to International Monetary Fund, the macroeconomic outcomes under the program have been robust, characterized by strong recovery growth, ongoing disinflation, a narrowing current account deficit, and an all-time high in foreign exchange reserves. The budget for 2024 is set to be tightly managed yet allows for necessary public investment. This fiscal approach underlines Serbia’s commitment to economic stability and growth.
The financial situation of Serbia’s energy sector state-owned enterprises (SOEs) has seen notable improvements. Moreover, there has been significant progress in structural reforms concerning energy sector companies, SOE governance, and broader fiscal management. These developments reflect the effective implementation of the IMF-supported program and the commitment of Serbian authorities to economic reform and stability.
Despite the global challenges, Serbia’s economy is on a recovery path, with growth projected to reach about 2.5 percent in 2023 and further increase to 3.25 percent in 2024. The labor market remains resilient amidst these changes. Inflation has been declining and is expected to return to the target range set by the National Bank of Serbia by the end of 2024, assuming the continuation of tight policies. The fiscal consolidation continues as agreed under the SBA, with the current account deficit significantly narrowing. Foreign Direct Investment remains robust, and the gross international reserves have surged to EUR 24.16 billion as of end-November 2023.
The 2024 budget anticipates a fiscal deficit of 2.2 percent of GDP, aligning with the tight policy stance and aiming to reduce the deficit further to 1.5 percent of GDP by 2025. This approach is in line with the country’s fiscal rule, which also includes increases in public sector wages and pensions. High capital spending is maintained in the budget to address substantial infrastructure needs, and no liquidity support is planned for energy SOEs unless large negative shocks occur. These conservative policies ensure that Serbia’s public debt in percentage of GDP continues to follow a downward trajectory.
The IMF program for Serbia is on track, with all quantitative performance criteria and indicative targets being met. The continued momentum in structural reforms, especially in the energy sector and SOE governance, is expected to mitigate Serbia’s remaining vulnerabilities and bolster long-term growth. The improvement in the finances of energy SOEs and the moderation of fiscal risks further attest to the positive impact of the program.