Economy May 6, 2026 12:55 PM

IMF Reaches Staff-Level Agreement with Serbia on Next Phase of Reform Program

Third review under a 36-month Policy Coordination Instrument clears a staff-level hurdle, leaving final sign-off to the IMF Executive Board

By Avery Klein

The International Monetary Fund and Serbian authorities have concluded a staff-level agreement on the third review of a 36-month Policy Coordination Instrument designed to facilitate external financing and support economic reforms. The IMF projects modest near-term growth, a stronger rebound in 2027, and higher inflation ahead, while stressing fiscal rules and warning that temporary fuel excise cuts should be reversed soon to protect fiscal sustainability.

IMF Reaches Staff-Level Agreement with Serbia on Next Phase of Reform Program

Key Points

  • IMF and Serbia reached a staff-level agreement on the third review of a 36-month Policy Coordination Instrument signed in October 2024; final approval is pending from the IMF Executive Board.
  • Growth is forecast at 2.75% this year with a projected rise to 4% in 2027, supported by EXPO-related spending, real income gains, new manufacturing export capacity, recovering agricultural output, and infrastructure and energy investment - impacting manufacturing, agriculture, construction, and energy sectors.
  • Fiscal rules include a 3% of GDP deficit limit for 2026/2027 and special constraints on public wages and pensions; recent fuel excise cuts provided short-term relief but are advised to be removed to protect fiscal sustainability.

Belgrade and the International Monetary Fund have reached a staff-level understanding on the third review of a 36-month reform arrangement, the IMF said on Wednesday. The Policy Coordination Instrument (PCI) was signed in October 2024 to ease Serbia's access to lending from other sources, and the latest review - which assesses compliance with the agreement's terms - now awaits approval by the IMF Executive Board.

In its statement following the mission's visit, the Washington-based lender set out its growth and inflation outlook for Serbia while noting external risks. The IMF expects Serbia's economic growth to rise to 2.75% in the current year but cautioned that spillovers from the war in the Middle East will weigh on activity.

Looking further ahead, the IMF projects growth of 4% in 2027. That uptick is expected to be supported by several factors cited in the IMF statement: spending related to EXPO activities, gains in real incomes, the development of new export capacity within the manufacturing sector, a recovery in agricultural output, and investments in infrastructure and energy.

On price dynamics, the IMF noted an upward trajectory in inflation, projecting a moderate increase to 3.5% in 2026 and to 4.5% in 2027. The lender attributed that rise to higher global energy and commodity prices. It also warned that monetary policy may need to tighten if elevated energy costs become embedded in long-term inflation expectations and lead to second-round effects.

Fiscal policy commitments form a central part of the arrangement. Under the PCI, Serbian authorities have pledged to cap the fiscal deficit at 3% of gross domestic product in 2026 and 2027, and to adhere to special fiscal rules governing public wages and pensions. These constraints are intended to support fiscal sustainability while reforms proceed.

The IMF also commented on recent temporary measures aimed at cushioning an oil price shock. Fuel excise reductions introduced in March-April 2026 have provided near-term relief, the statement said, but those measures should be withdrawn in the near term to avoid prolonged energy subsidisation and to safeguard fiscal sustainability.

The staff-level agreement advances Serbia's standing under the PCI but remains subject to formal approval by the IMF Executive Board. The IMF's statement closes the mission's review with an emphasis on maintaining the fiscal and monetary guardrails outlined in the arrangement.

Risks

  • External spillovers from the war in the Middle East could negatively affect Serbia's economic growth - risk to overall GDP and export-dependent sectors.
  • Rising global energy and commodity prices are projected to push inflation higher, which could prompt monetary tightening if those costs feed into long-term inflation expectations - risk to interest-sensitive sectors and bond markets.
  • Continued or prolonged energy subsidy measures, such as extended fuel excise reductions, could undermine fiscal sustainability and complicate adherence to the 3% deficit target - risk to public finances and sovereign credit conditions.

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