Republic of Serbia: 2023 Article IV Consultation, First Review Under the Stand-By Arrangement, and Request for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Republic of Serbia

This 2023 Article IV Consultation highlights that Serbia has made impressive economic gains over much of the past decade: living standards improved, inflation fell, public finances were strengthened, and reserves increased, helped by ample foreign direct investment (FDI) inflows. But spillovers from the war in Ukraine—especially the sharp increase in international energy prices—and deep-rooted problems in Serbia’s energy sector that came to a head last year, led to large external and fiscal financing needs, prompting the authorities to request a IMF-supported Stand-By Arrangement (SBA). Tighter monetary policy is needed to reduce inflation. The National Bank of Serbia should ensure that real ex-ante policy rates become positive and that such rates stay positive until the path of inflation is clearly converging to target. Fiscal policy should work alongside monetary policy as fiscal consolidation helps disinflation and lowers public debt. In addition, any fiscal over-performance should be saved or used for priority investments.