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BELGRADE (Reuters) - Serbia's economy has strengthened over the past three years but the government must accelerate privatisation of poorly managed state firms and cut a bloated public sector to achieve sustainable growth, the IMF said on Wednesday.
The head of the IMF mission to Serbia, James Roaf, said Belgrade had been successful in implementing fiscal consolidation measures after it clinched a 1.2 billion euro loan deal with the Fund two years ago.
The International Monetary Fund has cut its forecast for Serbia's 2017 budget deficit to 1.1 percent of gross domestic product from 1.7 percent, Roaf told a news conference.
Public debt is also falling "faster than originally expected", Roaf added, down to 68.1 percent of national output in June from 74 percent at the end of last year.
"However, Serbia's economy continues to suffer from serious vulnerabilities and structural weakness," Roaf said.
Unprofitable state-owned companies and cumbersome bureaucracy pose the biggest threat to macroeconomic stability and growth, he said, adding: "Public administration needs to be more efficient."
Successive Serbian governments have been slow in selling off loss-making state-owned firms, including a copper mine RTB Bor and chemical industry plants, fearing a social backlash.
For years a majority of state-owned firms have been managed by party officials rather than by professional managers, a long-entrenched practice dating back to communist Yugoslavia.
The Serbian economy is expected to grow by around 3 percent in 2017.
Serbia's three-year standby deal with the Fund is due to end next February and the final review is due in late October or early November, Roaf said.
"We will discuss public sector wages and pension rises then," Roaf said, adding it was up to the Serbian government to decide whether it would seek a new deal with the IMF.
The Fund mission arrived in Serbia two weeks ago to carry out the seventh review of the loan deal and assess the state of the economy.
Reporting by Ivana Sekularac; Writing by Marja Novak; Editing by Gareth Jones