Prof. DUŠAN VUJOVIĆ PhD, Minister of Finance: We Have Good Reasons to be Proud

Interview – Diplomacy&Commerce

What made you proud the most during your mandate so far?

I am very proud of the fiscal and the overall macroeconomic results achieved during the past three years of reforms, especially when viewed against the starting position. When I took office in mid-2014 the economy was in a freefall. Fiscal deficit was expected to reach staggering 8.8 percent of GDP, economic growth was negative (at -3.7 percent in the third quarter), current account deficit was in double digits, and the share of debt to GDP was increasing at the fastest rate in the recent history.

Last IMF programme went off track in late 2011 and the international financial markets have lost confidence in Serbia: interest rate spreads exceeded 500 basis points and fiscal liquidity was declining at an alarming rate. Bloomberg calculated that we had 78 days to bankruptcy. By contrast, at the end of 2016 fiscal deficit was only 1.3 percent and we are now running a fiscal surplus of more than 1.5 percent of GDP for the first nine months of 2017. GDP growth reached 2.8 percent in 2016 and is now estimated at 2.3 percent for this year. Debt to GDP peaked at 74 percent last year and is now down to less than 64 percent. Interest rate spreads have been reduced four times to 130 basis points. These are impressive achievements that substantially and consistently exceeded expectations of IFIs, economic analysts, and rating agencies. I am equally proud of the two less visible aspects of the programme. Firstly, the political window of opportunity for the long needed fiscal consolidation and reforms that was created by then Prime Minister Vučić based on the election results of March 2014. Secondly, our ability to design and implement a balanced program that combined macroeconomic fiscal and monetary stability, financial (banking) sector reforms, and structural reforms in the real economy for medium-term sustainable growth, with politically and socially acceptable costs.

What role IMF had in these achievements?

Absolutely critical. IMF support was essential not only in forging commitment to a specific set of detailed macro-stability and structural objectives, but also in specifying and observing (structur-al) benchmarks, and constraints (especially expenditure ceilings). Over more than three years we have developed a very good professional and personal collaboration which helped us update the programme in line with the actual results (performance), and properly reflect political and social preferences while fully observing the rules and commitments. Sometimes these rules imposed additional strain on the already complex three-year three-prong precautionary programme, but we moved quickly up the learning curve to better reflect country specific circumstances and true ownership of reforms. A greater empirically based flexibility in the IMF peer-review system would have been helpful in fine-tuning the program in the second and third year. This programme also assumed substantive collaboration between the IMF and the World Bank on structural reforms supported by a range of Bank advisory services and lending instruments.

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