IMF signs off on $1.4 billion loan for Serbia

File photo of visitors silhouetted against the logo of the International Monetary Fund at the main venue for the IMF and World Bank annual meeting in Tokyo October 10, 2012. REUTERS/Kim Kyung-Hoon

WASHINGTON (Reuters) - The International Monetary Fund on Monday signed off on a three-year, 1.2 billion euro ($1.4 billion) loan program for Serbia to help the eastern European country restore its financial health and reassure investors.

The IMF said Serbia plans to treat the funds as precautionary, as it seeks to deal with a ballooning deficit and public debt since the onset of the global financial crisis six years ago.

Under the program, Serbian officials committed to restoring the health of public finances, strengthening the financial sector, and to deeper reforms, including at state-owned enterprises, the IMF said.

Approval of the IMF program provides a cushion for government reforms, and is expected to strengthen demand for Serbian debt and in turn, for the dinar currency. Serbia's debt agency has several debt sales planned this week.

"The Serbian economy faces serious fiscal imbalances and entrenched structural weaknesses, in the context of slower growth and adverse regional spillovers," David Lipton, the IMF's first deputy managing director, said in a statement.

Under the program, Serbia promised to reduce the number of firms owned by the state, and 500 of them are already slated for privatisation or resolution, the IMF said.

But privatization plans for the country's loss-making steel mill to U.S. firm Esmark collapsed last week, in a blow to government efforts to rein in spending.

(Reporting by Anna Yukhananov; Editing by Chris Reese and Bernadette Baum)

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