Improved competitiveness must be retained
Overview:
The Serbian economy has withstood the economic crisis better than had been expected. The banking system is stable, the economy is returning to growth and both inflation and the current account deficit have been reduced sharply. The government has been heavily criticised, however, for the sharp fall in the (nominal) value of the dinar although a weaker (real) exchange rate has helped to restore some lost competitiveness. Under increasing pressure from the opposition, the authorities are tempted to loosen some of their commitments under the IMF agreement that rightly stipulates that the fiscal deficit should be sustainable and that current spending should be restrained to make way for crucial investment projects that will boost medium-term growth. Fiscal discipline must be retained as the recovery begins.