Serbia Economic Reforms

By | February 27, 2021

Serbia Economy & Development

Estimated GDP: US $ 53.0 billion (2019)

Per capita income (purchasing power parity): US $ 7,503 (2019)

Human Development Rank (HDI): Rank 63 (from 189 – 2019)

Proportion of poverty (less than $ 2 per day): 9.2% (2011)

Distribution of income (Gini coefficient): 34.0

Economic Transformation Index (BTI): Rank 27 (of 137) (2020)

Western Balkans “Mini-Schengen”

In October 2019, the Serbian President Vučić, together with the heads of government of North Macedonia and Albania, Zoran Zaev and Edi Rama, signed an agreement that has long been known as “Mini-Schengen”. The declaration of intent aims to create a common economic area in the Western Balkans, more precisely the free movement of goods, services and people between the countries in the region that are not yet members of the EU. The agreement is to become operational in 2021, although most of the details have remained unclear so far. The other Western Balkans Bosnia-Herzegovina, Montenegro and Kosovo were invited to join the agreement. From these, especially from Kosovo and Montenegro. However, there was criticism and rejection. So far it remains unclear how membership of Serbia and Kosovo, in view of the fact that Belgrade has not yet recognized Kosovo as a state, and since November 2018 there has been a trade conflict between the two states in which the economic alliance is supposed to function, or what function this should function To enter into agreements with already existing regional free trade agreements (e.g. CEFTA). According to thesciencetutor, Serbia is a country located in Southern Europe.

Political struggle for fundamental economic reforms

At the end of the election year 2012, with its various traditional tax gifts, the new government was faced with a veritable budget crisis. The budget deficit reached almost 8 percent, the public debt 62 percent of the gross domestic product. In this situation of threatened national bankruptcy, the International Monetary Fund offered help in the form of a new standby arrangement. However, the Serbian government refused to accept this offer of assistance because it was conditional on various structural reforms that had been demanded for a long time. Instead, Belgrade took advantage of the currently favorable conditions on the international money market and decided to close the budget gaps that had arisen through commercial loans, and ignored the warning of its own state tax council, among other things, that without strict budget consolidation and attacking structural reforms, the budget relief will be short-lived. As early as April it became apparent that the budget for 2013 was not feasible. For the first time, the government took the warnings of its tax council seriously, which calculated that instead of the planned budget deficit of 3.6%, without additional measures, a deficit of 8% of GDP would threaten.The tax council, local economists such as the World Bank and the IMF recommended urgent cuts in wages, pensions and subsidies such as structural reforms such as the return to negotiations on a standby arrangement with the IMF.

In the course of the reform discussion, differences within the government came to light. Resistance to drastic social cuts was particularly heard from representatives of interest groups such as the small pensioners’ party involved in the government, but also from the Socialist Party SPS. With the election of the young economist Lazar Krstić as the new finance minister and the economist Saša Radulović as the new economics minister as part of the government reshuffle at the beginning of September, the reform wing of the government seemed to gain acceptance in economic policy. A month later, Krstic presented a restrictive package of economic policy measures. It includes the budget spending cuts, especially the cut in subsidies, drastic cuts in public sector wages, VAT hikes and the restructuring of public companies. However, many observers remained skeptical as to whether the government in Belgrade would muster the political strength to initiate a sustainable change in Serbia’s economic policy. Numerous economists criticized the package of measures as inadequate.

These skeptics became at the end of January 2014 through the resignation of Minister of Economics Radulović, just a few days before the announcement of early elections. Radulović had prepared a reform package of four fundamental laws – a new labor law, a privatization law, an insolvency law, and a planning and construction law – which met resistance from the trade unions. After Prime Minister Dačić announced in an interview with trade union representatives that he would have the draft labor law reviewed again, which had already been approved by the government, Radulović resigned from his post in protest. He argued that the government did not have the strength to carry out fundamental reforms against social resistance. Radulović also announced the founding of his own, economically liberal party and participation in early parliamentary elections in March. In the elections on 16.

Strengthened by a historic election result, the new Prime Minister Vučić introduced the slightly modified labor law at the end of July 2014 against the resistance of the unions through parliament. Shortly before, Finance Minister Krstić resigned from his position. As a justification, he explained that his drastic cuts to solve the budget crisis – cuts in pensions, wage cuts and extensive staff cuts in the public sector as well as massive increases in electricity prices – had not found any support from the prime minister. However, parts of the press and political commentators interpreted Krstić’s resignation as a political maneuver to facilitate the implementation of drastic reform steps.

In September 2015, the government passed cuts in pensions and civil servants’ salaries, and passed a supplementary budget.

Serbia Economic Reforms