Serbia’s Economic Program Aims to Support Growth and Job Creation

IMF supports a new €1.2 billion program with Serbia

Objective to build foundation of healthy economy with higher growth

New government committed and already implementing difficult reforms

While it has weathered the financial crisis relatively well, Serbia faces a number of significant challenges: sluggish growth, serious fiscal imbalances, incomplete reforms, and natural disasters—an extreme winter and a drought in 2012, and devastating floods in 2014.

A new coalition government, which was appointed in April 2014, reaffirmed Serbia’s path to EU accession, and even before signing a new €1.2 billion Stand-By Arrangement with the IMF, already implemented some very difficult reforms that are needed to restore macroeconomic stability and achieve sustainable growth.

After the new program was approved by the Executive Board, IMF Survey interviewed Zuzana Murgasova, mission chief, and Daehaeng Kim, resident representative for Serbia, about the country’s prospects going forward.

IMF Survey: What are the main objectives of the program?

Murgasova: Three main pillars of the program are: restoring the sustainability of public finances; increase the stability and resilience of the financial sector; and implement comprehensive structural reforms that will boost job creation and bring sustained high growth back.

First, it envisages fiscal adjustments to stabilize public debt within the program period. The consolidation is largely based on curbing mandatory spending and reducing state aid to state-owned enterprises (SOEs). Actually, some of the major measures, related to pensions and public sector wages, have already been introduced in 2014 or are included in the 2015 budget, highlighting how committed the Serbian authorities are to the program.

Tightening on the fiscal side will allow for some relaxation on the monetary side. With the fiscal consolidation, the central bank will be able to reduce interest rates, fostering credit for the economy and the private sector to grow.

Second, the program aims to strengthen the financial sector. Serbian banks have weathered the crisis relatively well. However, the volume of bad debt (non-performing loans) has increased a lot. This is a significant challenge, but will be essential to get credit flowing again. When banks are clogged with too much debt that is not being paid, they can’t provide new loans to the economy. The Serbian government is committed to designing and implementing a comprehensive strategy to...