| Summary: | This paper presents Republic of Serbia’s Second Review under the Policy Coordination Instrument and Request for Modification of Targets. Serbia’s economic growth rebounded strongly at 7.4 percent in 2021. The war in Ukraine, energy sector challenges and high inflation are expected to lower growth in 2022 to 3.5 percent amid high uncertainty. Near-term risks are mostly to the downside and include more prolonged or severe spillovers from the war in Ukraine, rising energy prices, energy supply disruptions, more severe trade disruptions, and lower global demand. Serbia’s medium-term outlook, while uncertain, remains favorable, supported by the authorities’ commitment to structural reforms. Macro-financial stability has been maintained notwithstanding the various shocks. All but one end-December 2021 quantitative targets (QTs) were met. The ceiling on current primary expenditure was missed when additional fiscal spending was needed to ensure energy security. While the March 2022 inflation level triggered the consultation clause under the program, monetary policy has been tightened appropriately since October 2021. The IMF recommends completion of the second review under the PCI.
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