1. The Global and Serbia’s Economy CFO Summit Arandjelovac, June 1, 2012 Bogdan Lissovolik IMF Resident Representative for Serbia

2. Outline Where are we? Where are we going? What are the risks? What needs to be done? Serbia’s economy?

3. Where are we? Output Growth, 2011Q4

4. Where are we? Public Debt (% of GDP)

5. Where are we? 10-Year Government Bond Yields

6. Where are we? Unemployment rates

7. Where are we going? Output Growth, 2012-13

8. What are the risks? RISK 1: Euro Area Crisis RISK 2: Oil Prices

9. BANKS vicious cycles FISCAL GROWTH What are the risks?

10. What needs to be done? (policies) Fiscal policies: appropriate pace of consolidation Monetary and liquidity policies – balanced Well-coordinated policy package Structural reforms to boost long-term productivity and employment Support for the unemployed (social policies) More international coordination of macro-financial policies Strengthening the global firewall Macro-prudential policies need to be strengthened

11. What needs to be done? (regions/countries) Building a stronger currency union Improved fiscal rules and institutions Strengthening banking systems Euro Area

12. What needs to be done? (countries) Fostering domestic consumption, including through more exchange rate flexibility Economies with Large External Surpluses Economies with Large External Deficits Developing a domestic policy mix to gradually rebalance toward a sustainable export-oriented growth, based on FDI and prudent macroeconomic policies

13. Serbia: the “old-model” problem…

14. Serbia: Still-large External Deficit

15. With real wage outpacing productivity

16. Serbia: What to do? ✤ 1. Fiscal consolidation (including the spending side of the budget) ✤ 2. Product market reforms ✤ 3. Labor market reforms ✤ Examples:

17. Control public spending

18. Attract the right kind of FDI

19. Reform severance benefits

20. Thank You