National Bank of Serbia
External Relations | Relations with IMF | Extended Financial Arrangement 2002

Extended Financial Arrangement

The Executive Board of the International Monetary Fund (IMF) approved a three-year financial arrangement with FR Yugoslavia (FRY), the so-called Extended Arrangement for SDR 650 (about USD 829 million) to support the FRY's economic program of stabilization and reforms in the period 2002-2005 (Press Release No. 02/25 of May 13, 2002).

The approval will enable the FRY to draw SDR 50 million (about USD 64 million) immediately, when the Arrangement goes into effect on May 14, 2002. The funds provided through the Extended Arrangement would be drawn in 13 tranches of SDR 50 million, subject to the bi-annual economic programme and structural reforms performance criteria assessment.

The new financial arrangement was approved due to achievements and good results of the economic program and structural reforms set in the Stand-by Arrangement of June 11, 2001 as well as sustainable economic stabilization and reforms program of FRY for the period 2002-2005. The core medium-term economic program goals include: achievement of sustainable economic growth, improvement of citizens' living standard, lowering the inflation rate and father strengthening of country's foreign currency reserves. Key reforms will be implemented in the area of foreign exchange market liberalization, improvement of domestic payment system, enforcement of bank supervision, fostering of tax administration and stepping up the privatization process.

The approval of the Financial Arrangement with the Fund will enable FRY to realize the first phase of lowering of FRY external debt towards the Paris Club Creditors amounting to 51%, i.e. about USD 2 billion, in line with the Reconciled Memorandum On the Federal Republic of Yugoslavia's Debt Consolidation, signed on December 28, 2001.

Following the Executive Board discussion, it was announced that 'the IMF commends the FRY authorities on the impressive achievements in stabilization and reform since late 2000, when the FRY succeeded to membership in the Fund.' It was also said that the authorities medium-term economic program, supported by the Extended Fund Arrangement, aimed to achieve further progress in stabilization while providing for the restructuring and investment needs of the economy. The authorities were advised to firmly implement the program in order to keep FRY on a path towards durable growth and external sustainability. The authorities were also commended for demonstrated commitment to reforms in macroeconomic, monetary and fiscal policy and impressive speed with which they moved to implement key structural reforms. It was noted that the authorities' medium-term fiscal policy framework is consistent with achieving lower inflation and fiscal sustainability, cautioning, however, that it was critical for the fiscal sustainability to improve tax administration and streamline expenditure through improved efficiency in the delivery of services and better targeting of benefits.

The IMF welcomed further liberalization of the exchange system which paved the way for the acceptance by FRY of the obligations under Article VIII, Sections 2, 3 and 4, as well as firm intention of the National Bank of Yugoslavia to closely monitor developments in the foreign exchange market and to keep exchange rate policy under close review.