IMF upgrades GDP growth forecast for Serbia to 2.5 pct

IMF upgrades GDP growth forecast for Serbia to 2.5 pct

The GDP growth forecast has now been revised upwards for the second time in just two months, as the April forecast had been raised from 0.05 percent.

"We now expect real GDP growth of 2.5 percent in 2016, and inflation of 1.3 percent," IMF Mission Chief for Serbia James Roaf told a press conference after the conclusion of the Mission's visit to Belgrade for discussions on the fourth and fifth reviews under Serbia’s precautionary stand-by arrangement with the IMF.

"Strong performance under Serbia’s economic program continues. Economic growth is strengthening, supported by robust investment and rising net exports. Inflation has remained low and stable but below target, on account of lower-than-expected imported prices and food prices," Roaf said.

"The external current account deficit is declining amid robust exports," he also said.

The IMF mission, led by Roaf, started talks with the Serbian government representatives on June 9, focusing on the budget and reforms of the public sector and public companies, the fulfillment of obligations envisaged under the 2016 first quarter program, and economic policy measures for the upcoming period.

During the stay in Serbia, Roaf said that arrangement with Serbia was successfully being implemented and that the country was achieving excellent results regarding the set goals, underlining the importance of investments in the private sector, which had been propped up by positive trends and the recovery due to the fiscal part of Serbia's arrangement with the IMF.

In February 2015, the IMF and Serbia signed a three-year precautionary stand-by arrangement, worth EUR 1.2 billion.

The previous three arrangement revisions were positive, while the fourth was carried out in February 2016, ahead of a snap parliamentary election, with the IMF mission deciding to finalize it after the formation of a new cabinet.

Agreement reached

An agreement has been reached on the fourth and fifth reviews under Serbia's precautionary stand-by arrangement with the International Monetary Fund, IMF Mission Chief James Roaf said Tuesday at the conclusion of the Mission's visit to Belgrade.

We had good discussions with the caretaker government and the National Bank of Serbia, and a staff-level agreement was reached on policies needed to complete the fourth and fifth reviews under the stand-by arrangement, Roaf told a press conference in the Serbian government building.

The agreement is subject to endorsement by the new government, completion of policy actions related to key structural, fiscal and financial measures, and approval by the IMF Management and Executive Board, he also said.

We hope that this will be completed by the end of August, Roaf said.

The IMF was satisfied with the results achieved and revised the 2016 GDP growth forecast for Serbia from 1.8 percent to 2.5 percent, he said.

A potential increase of public sector salaries and pensions will be discussed with the Serbian government in late 2016, when the time comes to discuss the 2017 budget, Roaf said.

The discussions during the visit did not focus on an increase, he told a press conference.

"This is the middle of 2016 and it is clear under the program" that salaries and pensions for 2016 "are to remain as they are. We do not project increases in 2017 now, but we would look again at that situation when we come to discuss the 2017 budget towards the end of this year," he said.

"The overall objective of this program is to increase incomes both in the public sector and, importantly, in the private sector and among unemployed people", he said.

It is significant for Serbia to achieve "stronger incomes" sustainably, and a salary increase should be preceded by economic growth, he said.

Serbia could reduce the general government deficit to 2.5 percent of GDP, compared to the original target of 4.0 pct, Roaf said.

“The authorities have continued to make important progress in fiscal consolidation. The strong fiscal performance of 2015 continues in 2016, and all quantitative performance targets under the program for end-March were met, most by comfortable margins," Roaf said in an official statement released on Tuesday.

"Assuming continuing improved revenue collection and prudent execution of budget expenditure in the remainder of the year, the general government deficit in 2016 should fall to about 2.5 percent of GDP, compared to the original target of 4 percent of GDP, making another year of significant fiscal over-performance," the statement said.