Thewesternbalkans
- Serbia – International Monetary Fond (IMF)
Serbia has been a member of the International Monetary Fond since December 14, 2022 with a quota of Special Drawing Rigthts (SDR) 654.8 million.
Last developments of cooperation with the IMF are linked to a Stand-By Agreement form December 2022 for Euro 2.4 bn in SDR.
On March 26, 2024, The Serbian authorities and IMF staff reached staff-level agreement on the third review under the Stand-By Arrangement (SBA).
Main conclusions of the agreement are as follow:
- Macroeconomic outturns under the program remain strong, with growth recovering, a solid fiscal position, ongoing disinflation, record-high reserves and a strong labor market.
- The “Leap into the Future — Serbia 2027” development plan envisages a large increase in public infrastructure investments. Prudent fiscal management and medium-term investment planning both remain critically important.
The IMF mission was led by Donal McGettigan, and held meetings with the Serbian authorities during March 14-26, 2024, to discuss performance under Serbia’s Stand-By Arrangement. At the conclusion of the mission, Mr. McGettigan issued the following statement:
“The program remains on track with all end-December 2023 quantitative targets met, and all end-March 2024 indicative targets expected to be met based on available data. The structural reform agenda is advancing. The staff-level agreement is subject to approval by the IMF’s Executive Board, which is scheduled to consider this review in the second half of June 2024. About EUR 400 million (SDR 316.46 million) would become available after the Board meeting. Considering the strong accumulation of reserves and fiscal buffers and the reduction in macroeconomic imbalances, the authorities expressed their intention to continue treating the SBA as precautionary.”
“The Serbian economy has been performing well under the Fund-supported program, despite the challenging global and regional environment. Macroeconomic outcomes in 2023 exceeded expectations and are expected to remain strong in 2024. Growth is projected to increase to 3.5 percent in 2024, and to 4.5 percent in 2025, as domestic demand picks up. Lower regional energy prices and resilient exports supported a sharp narrowing of the current account deficit to 2.6 percent of GDP in 2023.”
“Risks to Serbia’s economic outlook include geopolitical and energy sector developments, uncertainties over trading-partner growth, and further global financial market instability. The Serbian economy has considerable buffers against uncertainties which include strong foreign exchange reserves and public sector deposits, relatively low public debt, sustainable external debt dynamics, and a well-capitalized and liquid banking system. The SBA and close Fund relations, accompanied by continued prudent policies, provide important additional buffers.”
“Going forward, and in line with the commitments under the SBA, macroeconomic policies should remain geared toward supporting external and fiscal sustainability and ensuring adequate buffers to deal with future shocks, building on the good progress achieved thus far under the program”.
“The existing monetary policy stance is appropriate and is consistent with ongoing disinflation. Although disinflation has outpaced earlier projections, it would be prudent not to loosen monetary policy prematurely given remaining inflation risks, including the tight labor market.
“The Leap into the Future — Serbia 2027” development plan envisages large public infrastructure investment increases over coming years. Prudent fiscal management and medium-term investment planning remain critically important. Low fiscal deficits should be maintained to consolidate Serbia’s gains in reining in public debt and rebuilding external and fiscal buffers. While critical infrastructure gaps exist, current public investment is relatively high and any additional investment spending should be carefully prioritized and phased in, considering projects’ costs and benefits and broader macroeconomic considerations. The IMF urges the authorities to increase investment transparency and to fully operationalize the public investment management framework to underpin investment quality.”
“Energy sector reforms should continue. The IMF welcomes the authorities’ commitment to remove energy price controls for the non-regulated sector. This should be followed by the necessary revisions to the electricity and gas pricing systems to ensure financial sustainability of the energy state-owned enterprises and their ability to finance much-needed investment projects.
“It is important to continue preparing secondary legislation to make the new landmark SOE governance law operational by September 2024. The Ministry of Economy should prioritize fully staffing all needed internal structures so that it can assume its expanded responsibilities under the SOE governance law.
- Serbia – World Bank Group (WBG)
The WBG’s comparative advantage in upper middle-income countries like Serbia lies in its ability to combine financing with the support to innovative policies and high-impact projects. Serbia continues to access external capital markets on reasonable terms, as the Government of Serbia has established a strong track record of prudent macroeconomic policies. The new Framework of cooperation will support activities that are less focused on direct financing of simple infrastructure projects (e.g., Corridor X, financed under the previous CPF); and more on endeavors requiring more complex interventions, even within infrastructure (e.g., Railway Sector Modernization Multiphase Programmatic Approach). It also supports institutional capacity building for better service delivery and innovative policies and institutional reforms for greener, more resilient growth – which have potential for learning that can be transmitted as global public goods from Serbia to other countries.
Following the World Bank (WB) analysis, “Serbia has made substantial gains in building institutions since emerging from the conflicts of the 1990s, but government effectiveness remains a challenge. The first democratic governments elected in the early 2000‘s initiated the political and economic transition typical of other Eastern European countries a decade earlier. Significant progress was made on achieving a stable macroeconomic framework and substantial fiscal buffers, notably since 2015. However, as noted in the 2020 SCD Update (Systematic Country Diagnostic), historical trends in governance indicators show that Serbia’s improvement has stalled in certain dimensions, holding back development progress in other areas. Thus, the current level of government effectiveness in Serbia is below those observed in new EU Member States five years prior to their accession. Moreover, checks and balances are still below the average for other upper middle-income countries, and significantly below EU levels.”
Good governance, effective institutions and a more sustainable development path need to underpin Serbia’s new growth model. More progress needs to be achieved on strengthening policy coordination, institutional capacity, and improving transparency and accountability to reduce patronage and corruption. These factors limit the ability of the private sector – notably of domestic private enterprises – to thrive and to contribute to productivity gains; and can potentially delay much needed reform to achieve inclusive service delivery. The COVID-19 pandemic, moreover, highlighted the need for new policies that create a more balanced, just, and sustainable economy and that promote clean and green development across sectors – while boosting the overall competitiveness of the economy.
The ongoing war in Ukraine, which has resulted in a global supply shock, affects the Serbian economy. Primary transmission channels include trade of goods and services, FDI, financial sector stability and remittances. Although Serbia’s combined total exports to Ukraine and Russia account for only 5 percent of the total, Serbia imports 93 percent of natural gas (vital for Serbia’s industrial production) and about a third of its crude oil from Russia. The conflict may also have secondary impacts, including further increases in inflation though higher energy and food prices, which will disproportionately affect Serbia’s poorest households.
Key development challenges articulated by the WB update include emerging priorities related to the green agenda. Priorities for Serbia today include maintaining the hard-won macroeconomic stability, fostering competitive markets and the business environment; strengthening government effectiveness, efficiency, and accountability; boosting human capital; reducing labor market barriers; and dealing with spatial inequalities. Emerging priorities include fostering environmental sustainability and resilience, including to national disasters; strengthening climate resilience; and supporting the just transition to a low-carbon economy through the expansion of renewable sources and non-coal mining.
- Serbia – European Investment Bank (EIB)
EIB has been active in Serbia since 1977. Since 2001 it has been providing finance to support key infrastructure projects as well as medium and small enterprises, industry and the local authorities.
In 2019 along with EU-The Western Balkans Investment Framework (WBIF) grant of Euro 40.6 million, the EIB lent Euro 140 million for the new highway linking Nis and Merdare near to the Kosovo frontier. The project represents a concrete step toward reconciliation in the region.
Since 1977 the EIB has been financed 99 projects for Euro 7.93 bn. The EIB is working with 10 local partners. The Bank has financed transport project – 42.7%, different credit lines – 36.02%, industry – 6.42%, services – 3.52%, health – 3.21%, energy – 2.44%, education – 2.37%, water sewerage – 1.41%, urban development, telecom and composite infrastructure – 2.14%.
The most important last projects are:
- EIB Global and Banka Intensa Beograd to boost Serbian companies access to finance and green investments with a Euro 100 million;
- New Biosense institute building opens for scientists and startups;
- EIB Global and OTP Group Serbia unlock Euro 80 million to help small business navigate challenging economic environment.
The last big project has been launched on 26 March 2024 when construction of new railway section started between Nis and Dimitrovgrad. As a part of the EU Economic and Investment Plan, the overall modernization of 104 km railway line will improve the safety and regional connectivity and more environmentally friendly transportation options. The EU financial package is Euro 108 million in grants via the WBIF and Euro 134 million EIB loan. The railway section is a part of EU corridor X.
4. Serbia – European Bank for Reconstruction and Development (EBRD)
Since 2001, the EBRD has had realised investments of over €8.913 billion in over 348 projects. Since 2017, Serbia has received the largest volume of the Bank’s investment commitments among economies in the Western Balkans. In Serbia the EBRD focuses on accelerating the green energy transition; enhancing private-sector competitiveness, productivity and access to finance; financing sustainable infrastructure and strengthening regional connectivity.
Private sector share 53% of the bank’s portfolio. Current portfolio of projects is about €2,877 million.
The last EBRD projects for Serbia are:
– EBRD and Erste bank approved financing for new windfarm in Serbia;
– EBRD and NLB Komercijalna Banka support SMEs in Serbia;
– EBRD supports Serbia’s leading software development company Vega IT;
– EBRD launches ENEF II for the Western Balkans; Banca Intesa joins anchor investors.
Comments: The four most serious international financial institutions are solidly represented in Serbia. Their actions complement each other and reinforce each other. There is a very good coordination, both between these institutions and at the governmental level in the Republic of Serbia, with efforts focused on the main development priorities of Serbia.
The role of the IMF in managing Serbia’s foreign debt can be seen. Following the National Bank of Serbia, in December 2023 the external debt reached USD 50.2 bn, compared to USD 47.4 bn in the third quarter of 2023. External debt in Serbia averaged USD 23.4 bn from 2003 until 2023. The record low was of USD 10.9 bn in the third quarter of 2004.
The role of the World Bank in the country’s macroeconomic policy is also clearly emphasized, as well as the role of the two European banks in stabilizing and strengthening Serbia’s readiness for membership in EU. Various grant schemes are successfully combined with loans from the respective banks.
In general, it can be said that, on the one hand, Serbia has created an excellent coordination system for the assistance of international financial institutions, and on the other hand, this IFI have tried to ensure sufficient dependence of Serbia on these institutions, which geopolitically supports the maintenance of the policy of balancing the country’s relations with the East and the West.
It is also very important that the IMF and the WB provide us with strong analyses of the Serbian economy level of development.
