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External Relations | Relations with IMF | Extended Financial Arrangement 2002

Article IV Consultation

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. During those consultations, the IMF mission reviews the overall economic developments in the country, as well as its policy measures aimed at maintaining of economic stability, ensuring a sustainable external balance and further liberalizing foreign trade.

Upon the completion of the IMF mission consultations, the IMF Executive Board discusses the staff report and issues an assessment of the country’s economic situation and the adequacy of its economic policy measures, based on a comprehensive analysis of the overall economic situation and a wider economic policy strategy of such member country.

Article IV Consultation in 2006 and Post Program Monitoring 

The IMF applies Post-Program Monitoring in agreement with a member country after the completion of a regular financial arrangement. Post-Program Monitoring involves frequent consultations and monitoring of the implementation of the economic programme in order to give timely warning of any possible external imbalances.

After the successful completion of the three-year financial arrangement with the IMF in February 2006, the IMF maintained its presence in Serbia under the Post Program Monitoring agreed until to end in October 2007. The IMF mission visited Belgrade in late June 2006 for detailed discussion of macroeconomic developments and implementation of agreed policies and measures. Article IV consultations were also held on this occasion.

On October 18th 2006, following the careful consideration of the staff report on the above talks, the IMF Executive Board issued a Public Information Notice No. 06/120 to mark the conclusion of Article IV Consultations with the Republic of Serbia. In this notice the IMF stated that Serbia had recorded significant economic growth over several preceding years which reflected progress in macroeconomic stabilization, restructuring of the banking sector and privatization. However, economic authorities were still facing challenges of high current account deficit, rising foreign debt and an insufficient volume of fixed investments.

The NBS monetary policy and anti-inflationary measures received positive assessment, as did the NBS’ plan to adopt an inflation targeting regime. To achieve financial stability, the mission recommended, among other things, continuation of privatization and implementation of bankruptcy procedures, stronger banking supervision and a more restrictive fiscal policy stance. In view of the planned continuation of economic restructuring, the IMF advised that the employment policy ought to be oriented towards creating new jobs.

Article IV Consultation in 2007

Article IV Consultations were held in Belgrade on October 26th through November 7th 2007 between the representatives of the IMF and the Republic of Serbia to get an update on the most recent macroeconomic developments, implementation of measures and the economic policy planned for the year ahead.

On  January 28th 2008, the IMF Executive Board (PIN No. 08/11) concluded Article IV Consultations with the Republic of Serbia. Strong economic growth and moderate inflation in the Republic of Serbia in 2007 received positive assessment. To a large part, they reflected the impact of tight monetary policy and progress on structural reforms and privatization process during the past seven years of transition.

However, as a result of rapid growth in domestic demand fuelled by large wage increases, credit growth and expansionary fiscal policy, current account deficit widened during the period under review, private external debt accumulated and vulnerabilities rose. The Executive Board, therefore, recommended the conduct of a tighter fiscal policy and enhanced structural reforms.

Large capital inflows allowed for a notable accumulation of foreign exchange reserves, but also represented a challenge for the conduct of macroeconomic policy as they led to a surge in domestic demand. According to the Executive Board, international financial market turbulence increased volatility in domestic markets, while continued political uncertainties added to the underlying vulnerabilities and underscored the importance of stability-oriented macroeconomic policies.

The IMF mission assessed that targeting a tighter fiscal stance would help contain external imbalances, excess demand pressures and increase the likelihood of a turnaround in the current account deficit. Fiscal consolidation should focus on expenditure savings, in particular by curbing discretionary spending and subsidies, controlling public sector wages and pensions, and prioritizing capital spending.

The Executive Board welcomed the success in containing inflationary pressures by a tightened monetary policy, despite food and oil price shocks. The Board encouraged the authorities to aim at keeping core inflation within the projected range of 3-6 percent in 2008, and to formally adopt the inflation targeting regime once necessary conditions were in place.

The efforts to accelerate privatization and implement bankruptcy procedures of socially owned enterprises in order to create possibilities for investment of private capital in public enterprises were welcomed by the Board. Corporate sector reforms and further measures to improve the business climate were assessed as key to enhancing growth and employment.

The Executive Board gave its support to further strengthening of the regulatory framework to manage increasing financial sector risks. Developing domestic capital markets should also contribute to enhanced financial stability in the medium term.