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KOPAONIK, Serbia, March 7 (Reuters) - Serbia's structural reforms still have a long way to go, an International Monetary Fund official said on Tuesday, but added that the lender no longer believes the country needs to cut interest rates for the moment.
James Roaf, the head of the IMF mission for Serbia, told Reuters that implementation of a 1.2 billion euro precautionary loan programme with Serbia was going well, and he described economic and financial reforms so far as excellent.
However, other reforms including disposal of unprofitable state firms were lagging, he said on the sidelines of a forum in the mountain resort of Kopaonik.
"It is the structural reforms that's going to make or break the programme," Roaf said in an interview. Asked if Serbia was a model child, he said: "The structural reform agenda still has an awful long way to go ... so in that sense it is not a model child yet."
"There has been some good progress in some areas," he said, but added that progress in the petrochemical, mining and energy sectors has been slow.
The IMF is set to review Serbia's compliance with the three-year deal in May. This is due to expire in February 2018, but Prime Minister Aleksandar Vucic said in January he hoped Belgrade would discuss another deal with the lender.
To save on hefty subsidies, the government has already sold its only steel mill, Zelezara Smederevo, to China's Hesteel . It also wants to sell RTB Bor, its sole copper mine and foundry, and must restructure the EPS power utility.
The heavily indebted drugmaker Galenika and several petrochemical plants are also slated for privatisation while the government has invited bids for a concession to operate Belgrade's Nikola Tesla airport.
Last year the IMF recommended that Serbia, a candidate for European Union membership, should cut interest rates.
However, Roaf said: "We are not pushing any more ... The rate is appropriate at the moment," adding that the outlook depended on external developments.
Last month the Serbian central bank kept its main rate at 4 percent, citing pressures stemming from abroad, including the possibility of further rate increases by the U.S. Federal Reserve that could make investors shy away from emerging markets.
Roaf commended the Serbian central bank monetary policies as responsible, saying the IMF had only "minor differences" in opinion over the dinar currency's exchange rate.
The central bank keeps the dinar in a managed float against the euro with currency interventions on the domestic interbank market, while the IMF wants more flexibility in the exchange rate.
On Tuesday, the dinar closed at 123.82 to euro, a fraction weaker on the day and down 0.4 percent so far this year.
Under the IMF deal, Serbia has lowered its budget deficit and debt, improved economic growth, boosted state revenues and made some savings in its public sector.
Last November, the Fund said Serbia's economy will grow 3 percent in 2017, up from 2.5 percent year-on-year in the fourth quarter of 2016. The central bank forecast growth this year at 3.5 percent. (Reporting by Aleksandar Vasovic; Editing by David Stamp)