IMF: Impressive Economic Gains of Serbia, But There Are Large Fiscal Needs

Serbia has made impressive economic gains over much of the past decade, but spillovers from the war in Ukraine and deep-rooted problems in Serbia’s energy sector led to large external and fiscal financing needs, announced the International Monetary Fund (IMF).

In the published report on Serbia, following the first review under the stand-by arrangement, the IMF says that living standards improved, inflation fell, public finances were strengthened, and reserves increased, helped by ample foreign direct investment (FDI) inflows.

However, the consequences of the war in Ukraine, especially the sharp increase in international energy prices, and deep-rooted problems in Serbia’s energy sector that came to a head last year led to large external and fiscal financing needs, prompting the authorities to request a Fund-supported Stand-By Arrangement (SBA), the IMF says.

The report says that fiscal and external outturns for 2022 were both better than expected, and unemployment remains low.

Record FDI inflows continue to drive reserves higher, but inflation remains a pressing challenge it is added.

Led by high food and energy prices, headline inflation is now well above the National Bank of Serbia’s (NBS’s) target band and core inflation has also increased sharply, it is said.

Fiscal policy is expected to remain relatively tight in 2023, despite additional mid-year spending measures, the IMF says and points out that deep structural problems persist in the energy sector and are a key focus of the SBA.

The report also says that long-standing geopolitical challenges remain.

At the end of March and beginning of April, the IMF mission was on a two-week visit to Belgrade, on the occasion of the first review of the SBA.

The SBA worth EUR 2.4 billion has been carried out since December 2022 and lasts until the end of 2024. It was agreed in October last year, when it replaced the Policy Coordination Instrument.

Međunarodni monetarni fond-MMF Beograd

Narodna banka Srbije Beograd

International Monetary Fund

IMF

National Bank of Serbia

NBS

energy price growth

unemployment