Second Programmatic Private Financial Sector Development

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This program document presents the first in the series of up to three Programmatic Private and Financial Development Policy Loans (PFDPLs) to the Republic of Serbia to support the government's structural reform program. The objective of the PFDPLs is to support three policy areas: (i) further improve the business environment to encourage new business and to attract foreign direct investments (FDI); (ii) strengthen financial discipline by enhancing hard budget constraints in the enterprise sector through privatization or bankruptcy, of large Socially-Owned Enterprise (SOE), and the restructuring of public utilities; and (iii) build a more efficient and stable financial sector through continuing the divestment of state ownership in the banking and insurance sectors, enhancing prudential supervision of banking and encouraging development of the capital markets. The PFDPL is designed to support the government in advancing its financial and private sector related reforms. It is envisioned to be complemented by another Development Policy Loan (DPL) operation aimed at supporting Serbia's public expenditure management. The policy actions set in the PFDPL program will largely conclude the era of fast-track transition reforms in private and financial sectors of the Serbian economy. The private and financial sector reforms outside the PFDPL context will require a shift from immediate, near-term needs to medium- and longer-term results.