The IMF and Belgrade agreed on "an economic program that could be supported by a loan of about 1 billion euros under a 18 month precautionary stand-by agreement," IMF delegation chief Albert Jaeger told a press conference.

He added that the loan will "provide insurance (for Serbia) against financial shocks, help maintain fiscal responsibility and improve the investment climate".

The loan will still have to be approved by the IMF executive board, by the end of September. Serbia will have to fulfil several conditions to be eligible including presenting a proposal for a revised 2011 budget to parliment and a law on restitution of property nationalised in the communist era.

The Serbian authorities have already said they would only draw from the loan if the economic situation deteriorates.

The IMF said it had revised it projections for gross domestic product (GDP) growth in 2011 and 2012.

"A few weeks ago, we were still hoping that the growth of the GDP projected at 3 percent in 2011 and 5 percent in 2012 would be achievable," Jeager said.

"Unfortunately, recent data (...) have disappointed and we were forced to revise growth downwards" to 2.0 percent in 2011 and 3.0 percent in 2012, he added.

The goal for the budget deficit was raised from 4.1 percent of GDP as projected last November to 4.5 percent.

"Serbian economy is gradually recovering from a severe downturn. At the same time, indications of slowing European growth and trade are clouding the outlook," Jeager concluded.

An earlier IMF stand-by loan worth 3.0 billion euros expired in April.

Copyright AFP (Agence France-Presse), 2011