- IMF staff and the Serbian authorities have reached staff-level agreement on the First Review under the Fund's Policy Coordination Instrument (PCI) subject to approval by the IMF Executive Board.
- Near-term growth has been affected by global uncertainty and domestic factors but is expected to accelerate over the medium term. The labor market remains robust, inflation is easing, foreign exchange reserves are high, and public debt is declining.
- Under the PCI arrangement, the authorities are committed to a fiscal deficit limit of 3.0 percent of GDP during 2025-27, supported by special fiscal rules on public wages and pensions. The PCI supports the authorities in advancing fiscal structural reforms aimed at enhancing governance and transparency in public investment management. Beyond macro-financial stability, continued economic growth will require reforms to strengthen the business environment and raise productivity to support FDI and domestic private investment.
Belgrade, Serbia: An International Monetary Fund (IMF) mission, led by Ms. Annette Kyobe, visited Belgrade during May 28–June 11, 2025, to discuss economic and structural policies in the context of the first review of the Policy Coordination Instrument (PCI) and the 2025 Article IV consultation. At the end of the discussions, the mission issued the following statement:
"Serbia's macroeconomic performance remains resilient. IMF staff projects the economy to grow by 3 percent in 2025 and 4 percent in 2026. Following a subdued first quarter, growth is expected to strengthen, driven by the government's investment program and the expansion of export capacities in the manufacturing sector. Headline inflation has fallen back within National Bank of Serbia's target band, supported by declining energy prices and moderating core inflation. Monetary policy is appropriately restrictive and should continue maintaining a tightening bias amid upside risks to prices.
The external trade balance has weakened compared to last year, reflecting accelerating imports associated with Serbia's public investment drive and sluggish exports amid a challenging global environment. Foreign direct investment inflows have moderated but together with exports are projected to continue supporting the accumulation of foreign exchange reserves from already ample levels.
Downside risks to the outlook are elevated. A global growth slowdown and increasing geoeconomic fragmentation could negatively affect exports and foreign direct investment. Domestically, political tensions may weigh on confidence. But Serbia has built up substantial buffers to respond to shocks— foreign exchange reserves and government deposits are high, public debt is declining, and banks are well-capitalized and liquid.
Preserving the track record of prudent macroeconomic policy is also key to mitigating risks. Fiscal restraint is essential to maintain policy credibility in an uncertain economic environment and to preserve room for a countercyclical policy response in case of adverse shocks. The authorities remain committed to limiting the fiscal deficits to no more than 3.0 percent of GDP over 2025-27 and to adhering to the fiscal rules on public wages and pensions. Any additional spending needs should be accommodated within the 3.0 percent of GDP deficit ceiling through careful public investment prioritization and budget reallocation. This balanced approach to infrastructure, social, and other spending priorities will keep public debt on a downward path, reinforcing fiscal credibility and investor confidence.
Continued efforts to ensure transparent, accountable, and efficient government operations remain crucial. The authorities are strengthening public financial management, including fiscal transparency, and public investment management. Public investment management can be further enhanced through more advanced cost-benefit analyses, fiscal risk assessments, and sound procurement practices. Energy sector reforms are advancing but more remains to be done to ensure financial sustainability and operational efficiency in state-owned enterprises.
In the medium term, contributions to growth from labor and capital accumulation will moderate as the population ages and the pace of public investment normalizes following the completion of the investment cycle. Maintaining high economic growth in Serbia would hinge on raising productivity, encouraging private investment by domestic firms, and securing Serbia's attractiveness for foreign direct investment. This calls for reforms to strengthen the business environment, including modernizing labor market regulations, digitalizing the public sector and the judiciary, and tackling governance challenges.
The IMF team would like to thank all their counterparts for their hospitality and open and constructive discussions."
