It is still early to discuss whether the International Monetary Fund during the negotiations within the first stand-by arrangement review mission scheduled for August will approve an increase in the budget deficit for Serbia, as it was agreed, said Deputy Managing Director of the IMF, Murilo Portugal, in an interview for the new issue of the Ekonomist magazine.

Portugal also underlined that he expected a positive result from the negotiations with the Government of Serbia in August. “I am sure we will reach an agreement. The negotiations might be complex and longer, but I believe that an agreement positive for both sides will be achieved,” Portugal said.

He pointed out that the IMFG would most likely have to reconsider the macroeconomic indicators included in the current stand-by arrangement with Serbia.

"For entire Europe the first quarter was weaker than we expected, and for some European countries we will have to decrease our economic growth projections. This also refers to Serbia, for which we forecast a GDP decrease of minus two percent in the arrangement,” Portugal explained.

He reminded that prior to concluding the stand-by arrangement the IMF and the Government of Serbia had agreed about some “contingency” measures, which are part of the Memorandum on Economic and Financial Policies. Those measures, which also stipulate a VAT increase, were proposed by the Government of Serbia.

"In my opinion, those measures are adequate, but we are ready to consider other measures as well. The authorities should propose new measures, since we are interested in the final fiscal effect, rather than any specific measures to be taken,” Portugal said.

The inflation in Serbia higher than in the region

Portugal estimated that the main challenge till the end of the year would be continuation of structural reforms, which should increase the level of resistance of the economy to potential new shocks.

"Generally, the priority should be structural reforms to reduce expenditures and increase economic growth. In Serbia a lot should be done in the fiscal sector regarding public spending efficiency. A major part of the public spending is taken up by public consumption, while public investment spending is relatively small. Besides, the efficiency in some sectors such as education or healthcare should be improved as well,” Portugal said.

He said that in the upcoming period some fiscal adjustment might be needed if the fiscal deficit exceeded the program projections. According to Portugal, the Government should act the soonest possible, since some measures, especially those in the fiscal area, demand a lot of time until they show first results.
“If you wait two more months to implement them, their influence will be weaker. So, the Government should plan or take new measures as of now,” Portugal said.

He stated that the inflation in Serbia was higher in comparison with countries in the region. There are several reasons for that, and one of the main are increased inflationary expectations, Deputy Managing Director of the IMF thinks.

"Problems are coming from the fiscal sector, which aggravates the overall macroeconomic picture, thus putting pressure on the regulated prices. However, we are sure that NBS will achieve the target inflation in the range of eight to ten percent, “Portugal said.