The agreement on a 1 billion euro ($1.3 billion), three-year precautionary facility was reached after “years of failure, non-discipline and running away from reforms,” Prime Minister Aleksandar Vucic told reporters in the capital Belgrade before the pact was announced.
Vucic, who wants to prepare Serbia to join the European Union by the end of the decade, sees IMF backing as a way to convince investors he’s committed to overhauling Serbia’s $43 billion economy at a time when scarce investment and weak foreign demand complicate recovery.
“This accord is a historical step,” Finance Minister Dusan Vujovic said. “‘For our people, it means a new beginning, new investments, new growth. For investors, who have shown faith with their investments, this will be confirmation that we are on track to secure growth and ensure a sound foundation for the economy on our way to Europe.’’
The country of 7 million people is about halfway through a two-year recession, according to the central bank, which sees gross domestic product contracting 2 percent this year and 0.5 percent in 2015.
Dinar Gains
The new program, which will come into effect on Jan. 1, calls for deficit cuts of as much as 1.4 billion euro, or about 4.25 percent of economic output, according to Vujovic. The IMF will monitor Serbia’s progress quarterly, he said.
The dinar gained 0.2% to trade at 120.03 per euro at 3:28 p.m., according to data compiled by Bloomberg. The yield on Serbia’s dollar bonds maturing in 2021 rose three basis points to 4.642 percent.
The IMF wrapped up a two-week visit to Belgrade after analyzing Serbia’s budget plans and measures to rein in the deficit and debt. Vucic has been holding on-again-off-again talks with the lender since his party first came to power in 2012.
After winning early elections last March, he pledged to sign a deal in July. He postponed talks when record floods in May hit the economy and caused his government to delay public-sector spending cuts.