At the end of last year, the total public debt of Serbia reached 26.7 billion euros, which is the largest amount in the last two decades. The lowest indebtedness, in the amount of 8.8 billion euros, was recorded at the end of 2008, since it has been constantly growing. Professor of the Faculty of Economics in Belgrade, Ljubodrag Savic, explains for Nova.rs that in the economy, the amount of debt is never viewed in isolation, but it is important how much debt burdens the state, whether it is able to service it, and what the borrowed money is spent on.
Serbia ended last year with a public debt of 26.7 billion euros, which is almost 2.7 billion more than the previous year. The share of debt in gross domestic product (GDP) also jumped from 52 to 57.4 percent.
Professor Savic explains for Nova.rs that the amount of public debt in itself may indicate something, but it is not enough.
“Most often, it is observed in the economy in a relative sense – how much it burdens the country. It is essential how much public debt service costs. If the country can afford it and pays regularly every year, then there are no problems,” he explains and adds:
“But if the country can’t stand it, it doesn’t matter at all how much debt it has. In that case, it is in trouble and it will be difficult to find someone to give it a new loan, to help it close the old one or repay the interest. That then means that the country becomes insolvent.”
He notes that there are criteria that must be met by all countries that want to be members of the European Union, and even candidates, according to which the tolerance for each country is that the share of public debt in the total GDP is lower than 60 percent.
Serbia is currently below that limit, and it crossed the border in the last twenty years in 2014, when the share of debt in GDP was 66.2 percent, in 2015, when it was a record 70 percent, and in 2016, when it was 67.7 percent.
The professor of economics reminds that in 2009, during the mandate of Mirko Cvetkovic, Serbia passed the Law on Public Debt, where the state committed itself not to take more foreign loans, if they increase the public debt above 45% of the share in GDP.
Since 2012, Serbia has been violating this legal provision all the time.
It is also important for the country to have a high credit rating, because in that case, the debt repayment costs will not be high either. But in order for the credit rating to be high, the country must pay interest regularly, so it is a matter of one round, Savic notes.
“Currently, Serbia is not in a big problem, regardless of the fact that we are borrowing quite dynamically due to the pandemic, it is still below 60 percent and we can service current obligations on public debt. It is good for us and other countries that interest rates at the world level have been falling significantly lately,” the professor estimates.
He warns that such a situation will not last and that it is necessary to look to the future:
“When the economies recover, interest rates will definitely go up. And we are not a country that can repay the loan whenever it wants, but we will continue to borrow in the future. ”
Because during Kostunica’s mandate, there was the least indebtedness
Serbia recorded the lowest public debt at the end of 2008, in which Mirko Cvetokvic replaced Prime Minister Vojislav Kostunica. At that time, the public debt amounted to 8.8 billion dollars, while its share in GDP was also the lowest and amounted to 26.8 percent.
“It was a time of privatization. Net transfer time. At that time, the state earned one billion five hundred, six million euros from just one Mobtel. Then we had a diaspora that was not in a crisis like today – now some have lost their jobs, and the third generation of guest workers no longer come to Serbia, they no longer invest. At that time, we did not need to borrow, we also had donations and income,” explains the professor.
By 2011, when there was a change of government, public debt jumped by 6 billion, from 8.8 to 14.8 billion. Since then, it has increased by almost 12 billion in 11 years.
“Everyone can interpret how it suits him, but we must keep in mind that we are a poor country that does not have a lot of capital and is forced to borrow,” says Savic, emphasizing that it is very important what the money was used for.
“If you take a loan and go to Mauritius and then repay it in two years, you are in trouble. But if you take a loan and buy two hectares of land or an apartment, and then squeeze in to return it, those two hectares or an apartment stand, and we only remember Mauritius from the pictures,” he says.
He explains that the same can be applied to the state:
“If you borrow and build a bridge, build a highway, then you can be in some problems in the short term, but in the long run you can only be at a profit because it is a capital investment that will definitely bring you much more income than you spent and it will pay off for you. If you have spent so that it increases your employment, you have an additional payment to the budget and you can expect it to return then that is fine. But if you spent it once, then it’s a big problem.”
He cites the National Investment Plan, which Serbia adopted in 2006, as an example of wasted spending.
“At that time, during the election campaign, they spent more than one billion on, figuratively speaking, painting the premises in Serbia and some small investments in order to gain power. Imagine that we spent that money to complete the highway that was started then,” says the professor of economics.
He states that the construction of the Ada Bridge, on the other hand, has been widely criticized, but there is an obvious benefit from it.
“It was probably possible to spend less on it, but today we have something to see. And if they gave these G17 experts to explain what they spent the money from the National Investment Plan on, they would not be able to,” says Savic.
He estimates that it is a pity that politics often reigns in Serbia, when economic decisions are made.
“There are those short-term interests that are motivated by political reasons. Those who are in power do not resist that, then they cause problems in the economy, and one of them is a high foreign debt that cannot be repaid by those who come after them,” he concludes, Nova reports.
