Serbia’s public finances in better shape than expected

Serbia’s public debt and fiscal deficit are lower than projected in the original program agreement between the IMF and the Government of Serbia. Moreover, fiscal restraints have not significantly hampered economic growth over the past three years of program duration. Instead, economic growth has exceeded IMF’s projections at the onset of the implementation of fiscal consolidation measures. This was confirmed by Sebastian Sosa, IMF’s resident representative in Serbia, at the presentation organized by the Foundation for the Advancement of Economics (FREN).

Sosa pointed out that Serbia is keeping inflation under control and that significant efforts have been made in reducing payment in arrears to Serbiagas and Elektroprivreda Serbia companies, but also noted that there are many remaining challenges in the field of structural reforms. He noted that the status of state owned enterprises in restructuring program needs to be resolved, and that public administration reform should be continued, in particular through public wage system reform and the rationalization of public employment. Finally, there is also the question of low public investments, which, if increased over the coming period, could positively impact economic growth.

Also emphasized at the gathering was the new role the IMF assumes in cooperation with countries that enter arrangements with it. In particular, more attention is paid to inequality, poverty, and environmental issues. According to Mr. Sosa, austerity measures in Serbia were designed with intention to protect the most vulnerable, primarily people with the lowest pensions, and public sector earnings. Similarly, social-benefits and other social expenditures were not subject to cuts.

According to the IMF’s resident representative, next year it would be feasible to reduce wage taxes in order to stimulate employment growth given the available fiscal space. A larger share of the budget should be allocated to financing active labor market policies through the National Employment Agency, such as public works, trainings, and qualification programs. Further savings are possible through reform of the maternity benefit and parental allowance which are relatively high compared to even countries richer than Serbia, and such savings could be used for higher expenditures on programs aimed at the poorest citizens.