Serbia Structural Problems

By | February 22, 2021


Map of Serbia

Map of Serbia

Impact of the Great Depression

The effects of the Great Depression that reached Serbia at the end of 2008 were noticeable, but could be kept limited by economic policy measures and international support measures. In 2009 the gross domestic product lost 3%, exports collapsed by 12%, and inflation rose by 8.1%. At the end of 2008-beginning of 2009 the dinar suffered a 20% drop in value, at the same time private households withdrew 18% of their deposits from banks. With the support of the IMF, the EU and international financial institutions, the Serbian government and the National Bank succeeded in ensuring the stability and capitalization of the banking system. Budgetary measures such as spending cuts and the freezing of nominal wages in the public sector and pensions have largely managed to stem the collapse of the revenue side. From 2010, Serbia recorded an economic recovery again,

As a result of decreasing budgetary discipline, political conflicts with the EU over Kosovo and the progress in the EU integration process as well as new instability in the euro area, there was another reversal in economic development from the end of 2011: industrial production began to fall again and reached mid-2012 – 4.0 percent. international rating agencies have downgraded Serbia’s creditworthiness and foreign investors have begun to withdraw capital from the country on a large scale.

Structural problems

According to themakeupexplorer, Serbia is a country located in Southern Europe. Despite considerable reform efforts and the fundamental restructuring of a nationalized, regulated and strongly slumped economy into a modern market economy, Serbia is still facing fundamental structural problems after a decade that threaten economic and budgetary stability.

The public sector in Serbia is still too big. Several hundred companies have not been privatized or caught up in what is known as restructuring. These employ around 100,000 workers, most of whom are not qualified to produce for the market. At the same time, the employment rate in the public sector remains extraordinarily high at 40 percent. With a 30 percent higher average wage level in the public sector than in the private sector, strong distorting effects arise. The fact that a large number of these public companies continuously produce losses that have to be offset by state subsidies means an enormous burden on the state budget. So the 514 caught in the so-called restructuring,

The poor condition of the infrastructure is a structural problem for state-owned companies and the private sector. The transport network is out of date, in particular the rail network and the road network have practically not been modernized for 20 years, and investment projects in renovation and expansion are just beginning. The energy sector urgently needs reform. The traditionally low energy prices for the economy, but also for private households, push them below the profit level, at the same time the industry is designed for energy-intensive forms of production and not for energy efficiency. In addition, there are no reforms in the future sectors of research and education.

At the same time, the institutional and bureaucratic conditions for private sector activity are still disadvantageous. After having risen from 95th to 86th place in the World Bank’s Doing Business Index in 2012, Serbia fell back to 93rd place in 2013. Certain progress has been made in recent years. In the ranking for 2016, Serbia achieved 58th place with a changed methodology of the index (comparable to 81st place according to the old method). In the ranking for 2019, Serbia rose to 43rd place (66th place according to the old method). The main problems continue to be high bureaucratic hurdles and approval procedures, as well as a lack of competition protection.In 2018, Serbia dropped to 48th place in the World Bank ranking. The country achieved above-average values in the areas of business start-ups, building permits and cross-border trade; The values in areas such as connection to the electricity grid, tax system and the (legal) enforceability of contracts were well below average.

Another central problem is the weak legal system and systemic corruption. In the ranking by Transparency International, Serbia took 77th place in 2017, and fell dramatically in 2018 to 87th place (out of 180 countries). It is still difficult if not impossible for actors in the private sector to get their rights through the courts.

The shadow economy in Serbia traditionally accounts for a share of the total economic volume that is one of the highest in Europe. In 2012, according to international standards, 30 percent of Serbia’s gross domestic product was generated by the shadow economy – with all the accompanying negative burdens on public budgets and social systems. Despite various measures taken by the Serbian government, led by the SNS since 2012, especially since 2015, according to analyzes by leading Serbian economists, the shadow economy has not shrunk, but has even grown slightly compared to 2012. The main reasons are above all the inefficiency and lack of political independence of the tax authorities, the tax amnesties regularly issued by the government and the weakness of the legal system.

Another unsolved structural problem is high unemployment and the unfavorable employment structure. At the beginning of 2012 the unemployment rate was officially 25.5%, a drastic increase compared to 2008, i.e. before the economic crisis, when the rate was still 14%. Unofficially, the unemployment rate is much higher due to the hidden unemployment. By 2015, unemployment fell a good bit, to 17.7%. Youth unemployment is a particular problem with over 50%. In 2011 there were 1,732,000 employees in Serbia – of which 130,000 were without pay and 400,000 employees only received the guaranteed minimum wage of 16,000 dinars (around 150 euros). This number compared to 753,000 unemployed and 1.69 million pensioners in the same year. A related urgent problem is the reform of the outdated and financially unsustainable social systems. This applies to the health system on the one hand, but above all to the pension system on the other. The Serbian pension system produces the highest losses in the region and one of the highest in Europe, with a loss of 7.5% of GDP in 2010. First reform steps such as raising the retirement age have been taken. Various reform measures such as reducing pension levels for around 40% of recipients were able to bring the annual deficit down to below 3% of GDP by 2017. In view of the aging of Serbian society, however, a lasting stabilization of the pension system will only succeed through an economic policy,