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imageBELGRADE: The International Monetary Fund on Tuesday commended Serbia's economic programme for its strong performance, but said greater effort will be needed to curb the country's high levels of debt.

In a statement after an IMF mission completed its fourth and fifth reviews of a 1.2 billion euro loan deal, the Fund said it saw Serbian inflation at 1.3 percent this year, well below the central bank's target of between 2.5 percent and 5.5 percent.

It commended the government's fiscal consolidation measures and said it expected the budget deficit to reach 2.5 percent of national output in 2016, compared with a targeted 4 percent, if the government continued to spend prudently.

"Strong performance under Serbia's economic programme continues. Economic growth is strengthening, supported by robust investment and rising net exports," the head of the IMF mission to Belgrade, James Roaf, said in a statement.

But he warned that "more determined reform is needed of state-owned enterprises, including large utility and mining companies," to curb the country's debt, which is expected to reach 78 percent of national output this year.

"Over many years, the failure to restructure inefficient and unviable state-owned enterprises has been a major obstacle to private sector-led growth, and has led to the repeated assumption of liabilities from these companies onto the public debt," Roaf said.

Serbia hopes to join the European Union in 2020, but is struggling to meet EU demands to reduce state involvement in the economy, where growth is slower than in other countries in the region. The unemployment rate of 18 percent is among highest in the Balkans.

Restructuring big state-owned companies means they would have to be downsized to make them more efficient, which could lead to the loss of thousands of jobs.

Such measures will put pressure on the new government, which prime minister-designate Aleksandar Vucic is still in the process of forming following his victory in a parliamentary election on April 24.

The Fund also raised its forecast for Serbia's 2016 growth to 2.5 percent from 1.8 percent, in line with government estimates.

The mission arrived in Serbia 10 days ago to meet Serbian officials and assess if the country is in compliance with policies agreed in the loan deal.

Copyright Reuters, 2016

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