The International Monetary Fund and Serbia agreed yesterday on a standby loan worth $4 billion to boost the finances of the country hit hard by the global economic crisis, the IMF said.

"An IMF staff mission and Serbian authorities have today reached an agreement subject to approval by the IMF management and executive board," said a statement issued to reporters in Belgrade after 10 days of negotiations.

"The enhanced arrangement would envisage a loan of around €3 billion," said the statement, adding the programme period was through to mid-April 2011.

The 27-month deal, it said, would replace a 15-month standby loan arrangement worth $530 million which the IMF had reached with the former Yugoslav republic in November. The IMF mission began talks with Serbia on Monday of last week about the fresh loan arrangement to help authorities here grapple with the global financial crisis.

Serbia's government had sought fresh talks with the IMF after its budget revenues fell well below the level anticipated under the previous arrangement.

Serbian and IMF officials confirmed the deal later at a news conference where they outlined its conditions.

"Under the agreement, in the next few weeks, the (Serbian) authorities have to take a series of measures including the revising of the budget and proposing legislative changes necessary for its implementation," IMF mission head Albert Jaeger told reporters.

"If these conditions are satisfactorily fulfilled, the standby arrangement could be submitted to the board of the IMF. This could be in early May but the exact time will depend on those prior actions," he said. Both sides confirmed Serbia's economy would contract in 2009.

"Serbia will probably have negative growth," the Balkan country's Finance Minister, Dijana Dragutinovic, said.

For his part, Jaeger said: "Serbia's GDP growth is likely to be negative this year, with limited prospects of recovering next year."

Under the agreement, Serbia's 2009 fiscal deficit was raised to three per cent of GDP, said Mr Jaeger.

Serbia's revised budget deficit would be $1.5 billion, according to Dragutinovic, who announced cost-cutting measures including wage freezes and the introduction of a broad-based income tax of 6.0 percent.

Central bank governor Radovan Jelasic said for his part that the $4 billion dollar loan arrangement was 5.6 times Serbia's drawing rights from the Fund.