Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Third Review Under the Policy Coordination Instrument (PCI) for the Republic of Serbia.[1] The decision was taken on a lapse-of-time basis.[2] The authorities have consented to the publication of the Staff Report prepared for the review.[3]
Despite intensifying external and domestic headwinds, Serbia’s economy has remained resilient. Following growth of 2 percent in 2025, economic activity strengthened in early 2026. Growth is projected at about 2.8 percent in 2026 and to accelerate to 4.0 percent in 2027. Headline inflation remained moderate at 3.3 percent year-on-year in April, within the National Bank of Serbia (NBS)’s tolerance band of 3 percent ±1.5 percentage points. Monetary policy has maintained a tightening bias. The banking sector remains sound, supported by strong capitalization, liquidity, and profitability. External pressures have increased, though gross international reserves remain well within the adequacy range. Against a backdrop of elevated uncertainty, risks to the outlook are tilted to the downside.
The 2026 budget maintains the program fiscal deficit ceiling of 3 percent of GDP and remains consistent with the fiscal rules on wages and pensions. The authorities have committed to keeping measures introduced in response to the energy price shock temporary, further strengthening fiscal risk management, and advancing fiscal structural reforms, including in public financial management and public investment management. They have also committed to advancing structural reforms in the energy sector to enhance security and sustainability, as well as reforms to strengthen governance and improve the business environment.
Program performance remained strong. All end-2025 quantitative targets on the fiscal deficit, primary current expenditure, domestic arrears, and net international reserves, as well as continuous targets, were met. Implementation of fiscal structural reforms also progressed well, and all reform targets were completed on schedule.
Executive Board Assessment
In concluding the Third Review Under the PCI with the Republic of Serbia, Executive Directors endorsed staff’s appraisal as follows:
With the war in the Middle East weighing on global markets, the Serbian economy has remained resilient. Growth is projected to remain robust in 2026 and strengthen further in 2027. However, risks remain firmly tilted to the downside, particularly if the war proves prolonged. Serbia’s strong fundamentals—including a broadly aligned external position, moderate public debt, high international reserves, and a well-capitalized banking system—should help the economy navigate these challenges.
Policy credibility under the PCI remains essential to preserve confidence. Fiscal policy should remain anchored by the program deficit ceiling of 3 percent of GDP over 2026–27 and adherence to fiscal rules on public wages and pensions. Fiscal risks are elevated, stemming not only from the energy shock but also from pressures related to Roads of Serbia (RoS) and the City of Belgrade. Should the energy shock persist, preserving the fiscal anchor will require implementing contingency measures identified by the authorities, including current spending rationalization and strict prioritization of investment projects. Over the medium term, continued fiscal discipline is needed to balance social spending pressures and large public investment needs while keeping public debt on a downward path.
Measures to cushion the energy price shock should be temporary and targeted. The recent fuel excise cuts should be phased out by July 2026 under the baseline scenario, in which oil prices remain broadly at current levels, as prolonged subsidization of fuel consumption would be distortionary, regressive, and fiscally costly. The costs of temporary measures should be accommodated within the fiscal deficit ceiling through reprioritization of current and capital spending. Should energy market pressures persist, any additional support should be well-targeted to vulnerable households while preserving price signals to facilitate adjustment and safeguard fiscal space for investment priorities.
Fiscal risks stemming from public entities require continued attention. Domestic arrears at RoS should be durably addressed through stronger monitoring and expenditure controls, alongside measures to align operational obligations with revenues. The ongoing assessment of the financial position of the City of Belgrade should be completed promptly to mitigate fiscal risks ahead of the next budget cycle.
Fiscal-structural reforms to strengthen PIM, fiscal transparency, and revenue administration should continue. Improving the appraisal, prioritization, and monitoring of all large public investment projects—including those outside regular PIM processes, such as projects of special interest and government-to-government projects—would enhance value for money and reduce fiscal risks. Planned publication of additional data on local governments, mineral taxation, and PPPs will strengthen transparency and accountability. Continued strengthening of tax administration capacity and compliance, including through more targeted audits, would support revenue mobilization.
Maintaining a monetary policy tightening bias and close monitoring of credit developments are warranted to contain inflation and financial stability risks. Monetary policy should remain tight and be tightened further if inflation expectations rise, second-round effects emerge, or inflation settles above the upper bound of the tolerance band. In light of continued double-digit household credit growth and the further expansion of the mortgage guarantee scheme for first-time young homebuyers, staff welcome the activation of the CCyB and the authorities’ commitment to allow temporary supervisory expectations on lending rates to expire. While household balance sheets remain sound and the banking sector appears resilient, the authorities should stand ready to deploy additional macroprudential measures should systemic risks build. The mortgage guarantee scheme should not be further expanded, and any future modifications should be subject to prior consultation with staff, given its increasingly distortionary effects on the mortgage market.
Sustained energy sector reform is increasingly important given heightened energy security risks and elevated energy prices. Strengthening the financial position of energy SOEs is essential to create space for needed investment, support energy security, and contain fiscal risks. Restructuring efforts at EPS should accelerate to achieve timely workforce rationalization and stronger governance ahead of planned large-scale investments. Continued progress toward cost-recovery electricity tariffs and stronger payment discipline among major debtors remains important for the sector’s financial sustainability. Persistent non-payment of energy bills—particularly by SOEs and sub-national entities—should be decisively addressed. Targeted energy support for vulnerable households should continue.
Reinvigorating broader structural reforms is critical to support Serbia’s transition toward a higher value-added growth model. Governance reforms should focus on reducing integrity risks in business regulation, licensing, inspections, and public service delivery. Staff welcome the authorities’ plan to amend the Law on Prevention of Corruption to extend asset declaration requirements to SOE top managers and board members. Improving the efficiency of judicial dispute resolution is also important for the investment climate. Ongoing judiciary digitalization should be complemented by an assessment of bottlenecks in resolving business-related civil and administrative cases. The authorities should also preserve labor market flexibility as labor laws are aligned with EU requirements. Trade facilitation reforms would further support Serbia’s EU integration.
READ MORE: https://www.imf.org/en/news/articles/2026/06/15/pr26201-serbia-imf-concludes-the-third-review-under-pci
