Serbia Strikes USD 1.2 B Loan Deal With IMF

Serbia has reached an agreement with the International Monetary Fund (IMF) on a 36-month USD 1.2 B precautionary standby arrangement. 

Under the agreement the Serbian government is committing to cut budget deficit to 4.2% of GDP from from 8% by 2016 by slashing wages in the public sector and trimming subsidies to loss-making state companies.

The head of an International Monetary Fund (IMF) mission in Belgrade, Zuzana Murgasova, said at a news conference on Thursday "the new economic program seeks to lay the ground for sustainable growth and job creation over the medium term by implementing ambitious fiscal consolidation and structural reforms."

The IMF froze its previous funding arrangement with Serbia in 2012 after the former government extended subsidies to unprofitable state loss-makers and failed to meet fiscal targets set by the global lender.

The IMF said Serbia's general fiscal deficit is projected to increase to about 8% of GDP in 2014, and public debt to rise to 68% of GDP by the end of the year.

"Without comprehensive policy changes, public debt would continue to rise to unsustainable levels, undermining macroeconomic stability and growth potential," the lender said in a statement.

Policy changes that Serbia has to imeplement unclude strengthening tax administration, improving public financial management, enhancing the control of public expenditures, and containing fiscal risks.

"Restructuring of large public enterprises — including electricity, gas, railways, and road companies — will help reduce the drain on the budget, while ensuring adequate provision of services."

At the same time, the existing social safety net will be maintained, to ensure proper protection of the vulnerable groups.