Ten days ago, the government allocated 3.5 million euros to purchase the land on which the covid hospital in Batajnica is located. The land is owned by a company associated with Slobodan Petrović, the former director of Imlek. Despite being built during the covid crisis for patient care, the hospital remains unused. Authorities plan to repurpose it once they acquire the land.
While there may have been some justification for building this facility and the planned vaccine factory, many of Serbia’s recent infrastructure projects, financed by taxpayers’ money, lack clear justification. Notable examples include stadiums in various Serbian cities (Leskovac, Loznica, Zaječar) and the National Stadium in Surčin, along with facilities intended for the EXPO 2027 exhibition.
Rather than carefully prioritizing infrastructure and capital projects amidst worsening borrowing conditions—since these projects are funded through loans or bonds—the state has adopted the opposite approach. The stadiums, vaccine factory, and covid hospital, which have consumed hundreds of millions of euros, remain underutilized and non-functional.
Three phases of borrowing
According to the Fiscal Council’s analysis, Serbia’s borrowing strategy has evolved through three phases:
- Institutional creditors: Initially, Serbia relied on institutional creditors like the EIB, EBRD, or IBRD, which involved stringent regulations and supervision, but provided favorable interest rates.
- Bilateral creditors: The second phase involved arrangements with bilateral creditors, offering quicker procedures but slightly higher interest rates.
- Open market loans: The third phase involves borrowing on the open market, which is significantly more expensive. For instance, financing the first phase of the EXPO 2027 project with the National Stadium involved issuing eight-year bonds worth 150 billion dinars (1.3 billion euros) at a seven percent interest rate, amounting to around 700 million euros in interest alone.
This rising cost of borrowing impacts the budget significantly, diverting funds from other needs and reducing the profitability and economic impact of new state projects. Public investments, traditionally a productive use of budget money due to their positive effects on growth and employment, are now becoming less effective.
The impact of public investments
The Fiscal Council’s analysis highlights that while public investments typically have a positive impact on economic development compared to other budget expenditures, their effectiveness diminishes with poor management. Investments in sectors with questionable justification, such as stadiums, or those reliant on foreign contractors, yield weaker economic benefits.
Historical investment cycles in Serbia and the former SFRY strategically developed domestic construction companies, which then offered services globally. However, recent investment patterns have not fostered similar growth. Since 2018, public investments have slightly boosted Serbia’s economic growth rate and increased the share of total investments in GDP. However, these investments have not mitigated the rise in deficit and public debt.
The Fiscal Council emphasizes that the productivity of public investments is increasingly compromised by poor sectoral allocation. Investments in neglected sectors like education and environmental protection could yield higher economic returns compared to less productive investments in areas like sports or imported military equipment. The current model of investment management, marked by non-standard practices, needs reform to prevent further damage and restore orderly, effective investment policies.
