IMF: Serbia’s fiscal deficit 7 percent of GDP this year

REUTERS/Yuri Gripas/File Photo

The International Monetary Fund (IMF) warned on Friday that the coronavirus pandemic is having a significant adverse impact on the Serbian economy, adding that the fiscal deficit in 2020 will amount to more than seven percent of the GDP and that the public debt is expected to increase.

The mission, led by Jan Kees Martijn, held virtual meetings with the Serbian authorities between June 24 and July 3, 2020, to discuss the fourth review under the PCI.

“The pandemic has had a significant adverse impact on Serbia’s economic activity. The shock is affecting the economy through lower external demand, weaker foreign investment and remittances, domestic supply constraints, and disruptions in regional and global supply chains. Real GDP is projected to contract by 3 percent in 2020, compared to an increase by 4.2 percent in 2019, and is expected to rebound to 6 percent growth in 2021. Given the highly uncertain economic outlook, we recommend careful contingency planning,” Martijn said in a press release.

“Program implementation has remained broadly on track. However, the sharp deterioration in the external and domestic economic environment caused by the COVID-19 outbreak requires an adjustment of the PCI objectives for the remainder of the program, which is set to conclude in January 2021. In this context, policies should continue to focus on supporting the economy through the crisis while preserving macroeconomic and financial stability, managing risks adequately, and protecting vulnerable groups. Quantitative targets have been reset to reflect the major changes in the fiscal outlook for 2020,” he said.

Martijn recalled that the Serbian authorities implemented what he said was a “prompt and well-designed policy response” in the form of a fiscal package which is among the largest in emerging Europe and the National Bank of Serbia (NBS) cutting the key policy rate and injecting liquidity into the banking system among other measures to preserve monetary and financial stability.

“The implementation of the fiscal measures, together with the decline in revenues associated with lower economic activity, will raise the fiscal deficit in 2020 to more than 7 percent of GDP, compared with 0.5 percent of GDP in the initial budget,” he said and warned against that increases in public sector wages and pensions should be limited. “Public debt, which was declining steadily prior to the pandemic, is now expected to increase in 2020 while staying below 60 percent of GDP, but should resume a clear downward trajectory in 2021,” he added.