The Executive Board of the International Monetary Fund (IMF) completed on Wednesday the sixth review of Serbia’s economic performance under the program supported by a Stand-By Arrangement (SBA), which enables the immediate disbursement of EUR 373 million, the IMF released.

Drawing the full amount would bring total disbursements under the SBA to about EUR 1.9 billion.

Serbia’s initial 15-month SBA was approved on January 16, 2009, in the amount of about EUR 409.5 million. On May 15, 2009, the arrangement was extended by one year and augmented to about EUR 3 billion to support the government's economic program amid a sharper than expected impact from the global financial crisis.

Following the Executive Board's discussion on Serbia, First Deputy Managing Director and Acting Chair John Lipsky said that the Serbian authorities’ implementation of the IMF-supported program has been broadly satisfactory.

"Continued vigilance will be critical as macroeconomic stability risks have increased, including from a surge in inflation, continued high trade deficits, and potential adverse spillovers from regional developments," Lipsky stressed.

"The authorities have appropriately tightened monetary policy in line with the inflation-targeting framework. With inflation risks remaining tilted on the upside, the authorities should continue to use all tools available to contain inflation expectations and bring inflation back within the National Bank of Serbia’s tolerance band," he underscored.

Lipsky said that fiscal policy has remained in line with the program, and that the 2011 budget targets a deficit consistent with the new fiscal responsibility framework.

"Determined efforts will be needed to achieve the 2011 fiscal targets, in view of growing pressures for higher spending. It will be important to pursue structural fiscal reforms. The current pension reform is a step in the right direction.

Further reforms will be needed in future to ensure the sustainability of the pension system," he pointed out.

Lipsky added that banking sector reforms have been commendable, and that Serbia’s banking system is well buffered to absorb the deterioration in corporate balance sheets.