The Executive Board of the International Monetary Fund (IMF) completed the third review of Serbia’s economic performance under a program supported by a Stand-By Arrangement (SBA), the IMF said on March 31 2010.

The completion of the review enables the immediate release of 319.6 million Special Drawing Rights (SDR, about 360 million euro, or $485.23 million).

The IMF said that Serbian authorities had indicated that they would draw only 50 per cent of the purchase available under the review.

This would bring total disbursements under the program to SDR 1.2 billion (about 1.3billion euro, or $1.8 billion). The board also completed the financing assurances review.

Serbia’s initial 15-month SBA was approved on January 16 2009, for SDR 350.8 million (about 395.13 million euro).

The arrangement was extended by one year and augmented to SDR 2.6 billion (about 2.9 billion euro) on May 15 2009 to support the Serbian government's economic programme amid a sharper than expected impact from the global financial crisis.

Murilo Portugal, IMF deputy managing director and acting chairperson, said that Serbia was continuing to "perform well" under its economic programme supported by the IMF stand-by arrangement.

"The authorities’ policy response to the global financial crisis has helped contain its adverse effects on the Serbian economy: the output decline has been limited, while falling domestic demand has resulted in significant external adjustment," Portugal said.

"Fast-paced GDP growth in Serbia before the crisis came at the cost of growing external and financial stability risks. As the economy recovers, policies should be geared toward promoting more balanced medium-term growth. There is a need for stronger structural and fiscal policies to raise productivity, exports, and savings.

"The authorities’ spending-based adjustment strategy aims at reducing high structural fiscal deficits mainly by restraining the growth of public wages and pensions, while public investments will be increased to address long-standing infrastructure bottlenecks," he said.

Fiscal adjustment in 2009 was in line with the programme, Portugal said, but was largely based on ad hoc measures that will need to be replaced by more durable spending reforms, such as the planned pension reform, and structurally sound reforms in the education, health, and administration sectors, while maintaining a well-targeted social safety net.

The adoption of fiscal responsibility legislation should help maintain spending discipline, he said.

"The Financial Sector Assessment Program Update concluded that the banking sector is well capitalised and highly liquid, and has successfully weathered the global financial crisis."

However, supervisory challenges remain, including streamlining prudential rules and formalising memoranda of understanding with key home supervisors.

Foreign parent banks’ commitments under the European Bank Coordination Initiative were welcome, according to Portugal, and the recent agreement to gradually phase out commitments was appropriate against the backdrop of a considerable easing of external financing pressures.

"To increase Serbia’s growth potential, structural reforms should be implemented, notably in the areas of public enterprise reform and privatisation. Recent efforts to streamline business laws and regulations are welcome," he said.