IMF calls on Serbia to speed up reform of public institutions

The International Monetary Fund (IMF) has said that Serbia’s near-term outlook remains positive, with a pick-up in growth expected during the second half of 2019 due to strong foreign direct investment (FDI), continued public investment, and assumed recovery in trading partner countries. The fund, which last week completed the second review of Serbia’s economic performance under the Policy Coordination Instrument (PCI), projects full-year growth in 2019 of 3.5 per cent.

However, Serbia remains vulnerable to spillovers from external developments, including weaker-than-expected growth in key trading partners. Over the medium term, the fund recommends that policies should be geared towards ensuring that structural drivers of growth are solid. This includes efforts to limit outflow of skilled labour by creating work opportunities within Serbia, as well as improve the private investment climate through the better provision of public services and reduction of the grey economy. Strengthening governance will also be critical, including providing legal certainty, as well as improvements in governance and efficiency of state owned enterprises.

“Serbia’s macroeconomic performance, supported by the PCI, has been strong,” said Mitsuhiro Furusawa, deputy managing director and acting chair of the IMF’s executive board. “Growth has been robust, public debt is declining, employment is rising, the financial sector is sound, and inflation is low. Continued strong programme implementation and determined structural reforms are important to address the challenges and accelerate income convergence with the EU.”

Mr Furusawa added, however, that reform needs to be implemented more vigorously.

“Reforms of state-owned financial institutions need to be implemented vigorously to improve efficiency and strengthen confidence,” he said, “Following the notable progress in addressing non-performing loans, the focus should turn to public institutions and the successful completion of the privatisation of the largest state-owned bank.”

He also added that building on recent tax administration reforms, further modernisation efforts will be critical for strengthening collections and improving the business environment.

“Resolution of the remaining problem state-owned enterprises (SOEs) is progressing slowly and implementation of the public wage system reform should not be further delayed. Improved governance, including better corporate governance of SOEs, can raise efficiency and economic growth,” concluded Mr Furusawa.