Second Programmatic Private Financial Development Policy Loan

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This program document presents the second in the series of three Programmatic Private and Financial Development Policy Loans (PFDPLs) to the Republic of Serbia to support the Government's structural reform program and mitigate the effects of the global economic crisis. The objective of the second PFDPL is to support the reform actions in three policy areas: (i) enhancing business enabling environment to encourage new private sector investments; (ii) strengthening financial discipline by enforcing hard budget constraints and continued reform of enterprise sector and public utilities; and (iii) building a more efficient and stable financial sector through continued restructuring of state holdings in banking and insurance sectors, enhancing crisis preparedness, and encouraging development of the capital markets. Additionally, the reforms supported under second PFDPL are supposed to increase the Government of Serbia (GoS) capacity in weathering the current global economic crisis. To this end, the second PFDPL supports a number of precautionary measures aimed at enhancing crisis preparedness, including adoption of liquidity framework, assessment of capital adequacy, enhancement of bank resolution framework, and strengthening of deposit insurance payout functions. It is expected that the upcoming third PFDPL will further contribute to strengthening Serbia's banking sector by providing support to implementation of the recommendations of the planned Financial Sector Assessment Program (FSAP) update.