IMF Completes Third Review of Serbia Stand-By Deal

• The IMF Executive Board concluded the third review under the Stand-By Arrangement (SBA) with the Republic of Serbia, authorizing additional access to about EUR 400 million (SDR 316.46 million). The authorities will continue to treat the SBA as precautionary and will not make the purchase available upon the approval of this review.
• Macroeconomic outturns under the program remain strong. Growth is increasing, inflation is falling, the current account deficit has narrowed, reserves are at record highs, and public debt is declining. The authorities are firmly committed to their 2024 fiscal plans, which are aligned with the SBA's fiscal targets, but higher public investment mean that deficits over 2025-27 are set to be higher than previously envisaged. Stepped-up public investment will be accompanied by additional transparency and public investment management reforms.
• The financial situation of the energy sector SOEs has been stabilized. Structural reforms in the energy sector companies, SOE governance, and broader fiscal management are progressing well.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Third Review Under the Stand-By Arrangement (SBA) for the Republic of Serbia. The SBA amounting to about SDR 1.89 billion, or approximately EUR 2.4 billion, was approved by the IMF's Board on December 19, 2022 (see Press Release No. 22/447). With this review, about EUR 400 million (SDR 316.46 million) becomes available. The authorities intend to continue treating the SBA as precautionary and not access the available funds.

With the impact of the energy crisis fading, growth is expected to increase to close to 4 percent in 2024 alongside a robust labor market, real wage increases and higher investment. Annual inflation fell to 4.5 percent in May 2024, moving back to the National Bank of Serbia's target range. The current account deficit is projected to widen to around 4 percent in 2024 as domestic demand improves, with ongoing foreign direct investment strength enabling further reserve accumulation.

The 2024 budget foresees a fiscal deficit of 2.2 percent of GDP, but ambitious infrastructure investment under the government's Leap into the future—Serbia EXPO 2027 development plan entail higher medium-term fiscal deficits than previously envisaged (latest projections are for deficits of 2½ percent of GDP in 2025 and 2¼ percent through 2027). Despite planned higher public investment outlays, public debt remains on a downward path.

The program is on track. All quantitative performance criteria and indicative targets were met, and structural reform momentum has been maintained. Following energy tariff reforms under the program, the finances of the energy SOEs have improved, and fiscal risks have moderated. Advancing the structural reform agenda centered on energy sector and SOE governance, energy pricing, public investment management, and broader fiscal structural reforms, will help address Serbia's remaining vulnerabilities and support long-term growth.

At the conclusion of the Board discussion on the Republic of Serbia, Mrs. Antoinette Sayeh, Deputy Managing Director, made the following statement:

"Serbia continues to recover well from the recent energy crisis, supported by the authorities' strong performance under the Stand-By Arrangement. Growth is recovering, inflation is falling, and fiscal and external buffers have increased. The finances of energy state enterprises have improved, moderating fiscal risks.

"The return of inflation to the central bank's target band in May is welcome. Maintaining an appropriately tight monetary policy stance will help guard against remaining inflation risks. Serbia's financial sector appears sound while ongoing vigilance is advisable.

"Pursuing prudent fiscal policy remains a priority. While higher public investment is needed, the authorities' new plans mean that fiscal deficits will be higher than under the deficit component of the fiscal rule, which is, as a result, being delayed. Careful prioritization of investment projects, greater transparency, close monitoring of cost pressures, and broader public investment management reforms will help deliver value for money.

"Additional changes to energy pricing and to energy state-owned enterprise (SOE) corporate governance will help bolster their financial positions, make room for energy investment, and contain fiscal risks. Also, progress with broader SOE governance and fiscal structural reforms continues.