Serbia: Level of FX Reserves continues to grow
Overview:
The sharp y-o-y reduction in the current account deficit noted in previous quarters continued in Q3. Indeed, the capital account situation has also started to improve. The net result is that Serbia is recording a balance of payments surplus, allowing the dinar to remain stable and the level of FX reserves to rise back towards previous high levels. Unlike Q2 where the increase in reserves resulted mainly from a large IMF disbursement, reserves grew in Q3 even though the next disbursement from the Fund has been delayed. The strong FX position justifies the extension of the IMF program and reduction in size of future tranches which may, anyway, be treated as precautionary. Even so, Serbia must develop a stronger export base and refrain from allowing its debt service ratio to increase much further.