Serbia Difficult Economic Situation

By | March 1, 2021

The flood of the century in May 2014

Serbia’s difficult economic situation is also negatively affected by the water of the century from May 2014. A careful damage assessment the European Bank for Reconstruction and Development (EBRD) came to a preliminary sum of 1.5 to 2 billion euros. The damage to agriculture alone could amount to several hundred million euros from the flooding of cultivated areas in the affected regions. Added to this are the economic effects of damage to 3,500 km of roads and 30 percent of the railway lines in Serbia. The damage to hard coal production in Kolubara and the associated reduction in electricity production should also be considerable. Overall, Serbia’s economic growth in 2014, which was previously estimated at a modest 1.0 percent, should decrease further. At the same time, the restructuring measures may have a negative impact on the urgently needed austerity policy, the planned budgetary consolidation measures. More accurate data yielded a common survey by the Serbian government with the EU, UN and World Bank from summer 2014. The total damage was calculated at 1.7 billion euros – this amount includes both the direct, physical damage and the damage caused to the Serbian economy. at the same time, the gross national product collapsed to -1.8% in the same year.

The IMF standby arrangement from February 2015

After more than two years of internal struggle by the SNS-led government with the threat of national bankruptcy and the necessary, far-reaching economic reforms, the International Monetary Fund (IMF) approved a standy agreement with the Serbian government in February 2015.

It comprises loans amounting to EUR 1.2 billion for the macroeconomic stabilization of Serbia and is based on comprehensive reform conditions and commitments by Belgrade. This includes, on the one hand, fiscal consolidation, which aims to reduce the public deficit from 6.6 percent of gross national product (2014) to 3.5 percent by 2017, and, among other things, provides for an annual reduction in the number of government employees by 25,000. On the other hand, Belgrade is committed to comprehensive structural reforms: to an administrative reform, a reform of public companies and the solution of the problem of 514 companies that are in the so-called restructuring process by the end of 2015. Behind this “solution”

To cushion these structural reforms and to finance them, the World Bank and the European Bank for Reconstruction and Development are providing additional loans amounting to 600 million euros.

In February 2018, Serbia successfully completed its three-year loan program with the IMF. Overall, the IMF praised Serbia’s economic development, which in some areas, such as budget consolidation, was more positive than forecast. Nevertheless, there is still a need for reform, for example in the reform of public institutions, state-owned companies and in improving the business climate. Against this background, the Serbian government agreed a 30-month Policy Coordination Instrument (PCI) with the IMF in July 2018, a program to support structural reforms, albeit without a new loan.

In its interim report at the end of 2019, the IMF confirmed that Serbia had an overall stable tax and budgetary position, but criticized the delay in reforms relating to public administration, i.e. reforms to the salary system and the employment system in the public sector, and called for further structural reforms in public companies.

Non-transparent large-scale foreign investments

According to timedictionary, Serbia is a country located in Southern Europe. As one of the means by which the Serbian government has attempted to stimulate the economy in recent years, large-scale foreign investments have become the focus of public interest and criticism. As a result of international advertising by the government and Prime Minister Vučić himself, Belgrade was able to announce several major investments and major projects financed by foreign investors and agreed with the government. The first success was the entry of the airline Etihad from the Gulf state of Abu Dhabi with Air Serbia. Second, the government in Belgrade announced the leasing of a huge agricultural area in Vojvodina to an investor from the United Arab Emirates.Belgrade by the water) on the site of the former Belgrade port.

All of these projects have met with fierce public criticism because of the lack of transparency in the investment arrangements. The respective contracts between the Serbian state and the foreign investors were only made public after strong public pressure. In the Beograd na vodi case, at the end of April 2014 the government defied all urban planning requirements in the form of a lex specialis, a special law that declared the building area to be a special building zone. Against the project, its interventions in the urban structure and its alleged economic viability, protests from economists, town planners and a citizens’ movement stir.

In the case of Air Serbia, the Serbian government’s economic policy approach has now shown its limits: In 2017 and 2018, the airline, in which Etihad acquired a 49 percent stake in 2013, slipped into the red. According to the contract, Serbia, and thus the taxpayers, is responsible for compensating the losses. The negative corporate development led to public speculation in June 2018 and denials by government officials that Etihad was planning to withdraw from the company.

Serbia Difficult Economic Situation