A strong recovery in economic activity in Serbia is underway

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Today, the Board of Executive Directors of the International Monetary Fund made a decision on the successful completion of the first review of the results of Serbia’s economic program, supported by the Instrument for Policy Coordination (PCI).
Given the good implementation of economic policy measures and good macroeconomic results, the decision was made without holding a formal meeting of the IMF Board, which is an option used when it is assessed that a formal discussion is not necessary, the National Bank of Serbia said.
The Committee assessed that a strong recovery of economic activity is underway, which is supported by a comprehensive and timely reaction of policy makers and strong pre-crisis growth.
On that basis, the gross domestic product of Serbia already in the first quarter of 2021 exceeded the pre-crisis level. The IMF is now projecting even higher growth than previously projected growth in 2021 and unchanged growth in 2022 of 4.5 percent.
The Fund’s report emphasizes the importance of maintaining the stability of the dinar exchange rate against the euro, and during the pandemic, to preserve overall consumer and investment confidence. It was also assessed that the banking sector is well capitalized and liquid, that the financial system of Serbia is healthy, as evidenced by all indicators, while important support for medium-term growth will be the development of the capital market and continued dinarization.
NBS Governor Jorgovanka Tabaković says that the decision on the successful completion of the first review of the economic program is expected, and points out that we have done a lot during 2021, which will also be remembered as a pandemic.
Cumulatively, Serbia will achieve one of the best results in Europe in terms of economic growth.
It took three quarters to return to the pre-crisis level, while after the crisis of 2008, the pre-crisis level was reached only after four and a half years.
The number of formally employed in the private sector increased and was 6.4 percent above the pre-crisis level in October, reaching the highest level of formal employment in the private sector.
The conditions for financing both the economy and the citizens and the state are even more favorable compared to the beginning of the pandemic.
The share of non-performing loans in total loans has dropped to below 3.5%, while full support for economic growth continues through lending activity.
The exchange rate of the dinar against the euro is stable, the changes are in the second decimal place.
Foreign exchange reserves, which are one of the most important pillars of current and future stability, are significantly higher than the pre-crisis level. At the level of 16.5 billion euros at the end of November, they are about three billion euros more than at the end of 2020, despite the pandemic.

The IMF’s board of executive directors expects that with the gradual normalization of supply and demand, inflation will return to the lower half of the target range in the second half of 2022, when the effects of this year’s drought will disappear and energy prices will stabilize.
It is also estimated that the NBS has started to adequately and cautiously tighten monetary conditions through liquidity management, without changing the level of the reference interest rate.
The report also states that the factors of the current inflation trend are temporary and that their indirect effects are limited, and the NBS should be ready to react if there is a need to keep inflation expectations at bay. It is added that core inflation has remained within the target limits, and that inflation expectations in the medium term are still anchored.
According to Governor Tabaković, the priorities for the NBS are known – ensuring price and financial stability in the medium term, with support for faster growth of our economy and employment, further growth of the export sector, as well as a favorable investment environment.
“In the face of challenges from the international environment, the NBS continues to carefully weigh every decision, and the flexibility of our monetary framework, which we created ourselves, allows us to react as soon as possible if conditions so require,” she said.
The IMF also assessed in the report that the budget for 2022 is well-balanced and predicts: further reduction of the fiscal deficit to three percent of GDP, moderate growth of public sector wages and pensions, and keeping capital investments at a high level.
The Fund also believes that the risks for the next period are generally balanced: on the one hand, a strong recovery of economic activity should continue due to private consumption and public investment, and, on the other hand, there is increased uncertainty resulting from weaker recovery than expected. European trade partners, disruptions in supply chains and rising world energy prices.
“The medium-term macroeconomic framework that the IMF estimates for Serbia is quite good and realistic. The framework projects growth in the range of four to 4.5 percent over the medium term, as well as sustainable public finances, while improving all fiscal parameters. It is also projected to preserve the country’s external position, which is within a sustainable framework, which is important for defense against external shocks, continuity of high capital investments and foreign direct investments, as a reflection of confidence in macroeconomic stability and good prospects of the Serbian economy,” said NBS Governor, Jorgovanka Tabaković.
This means that one of the most important international financial institutions has once again recognized the continuity of conducting a responsible economic policy in coordination with the Government of Serbia and the National Bank of Serbia, as well as expects the continuation of good policies, concluded Tabaković.
The Minister of Finance in the Government of the Republic of Serbia, Siniša Mali, said that the non-financial agreement with the IMF is very important, because they confirmed that the economic policy pursued is successful and that we are on the right path to progress even faster.
“We are very satisfied with the cooperation we have with the IMF, which is primarily of an advisory nature. The data speak best about that, because if we look at the cumulative GDP growth rate, this and last year, we will certainly achieve the best result in Europe, right after Ireland. At the end of this year, we will have a growth of 7.3 or 7.4 percent, and the next from 4.5 to 5 percent. This would not have happened if we had not implemented fiscal consolidation in time, thanks to which we are ready to face the biggest economic crisis ever, caused by the coronavirus pandemic. Last year and this year alone, we set aside eight billion euros to help the economy and citizens, thus preserving the level of economic activity and jobs,” he said.
He said that the stability of public finances was preserved and emphasized that the share of public debt at the end of the year would amount to 58.2 percent, which is far from 60 percent of GDP as prescribed by Maastricht.
He noted that in the coming period, the focus will be on continuing the implementation of structural reforms, which are needed to achieve even greater growth.
“Structural and institutional reforms are of particular importance to ensure stronger and more intensive growth in the medium term. First of all, I would like to point out the further modernization of the Tax Administration, as well as the reform of public companies. When it comes to their restructuring, the goal is to improve efficiency and limit fiscal costs and risks. I would like to remind you that the reforms concerning the Tax Administration are progressing, as well as that the transition period for the transition to the new model of e-fiscalization is underway, which will last until April 30, 2022. This is of inestimable importance for the fight against the gray economy, because the Tax Administration can now monitor the issuance of fiscal invoices in real time, ie whether VAT is well calculated,” said Mali.
The Minister of Finance also reminded that a new e-invoice system will be introduced on May 1 next year, which primarily refers to speeding up VAT refunds.
“We are keeping up with the times and trying to create a more efficient and competitive economic environment. This specifically means that if the input and output invoices are paired, the VAT refund can be realized in one day. This will further strengthen the business environment and contribute to the fight against the gray economy,” said Mali.
In addition to implementing measures to combat the gray economy, Mali cited as one of his priorities the implementation of a comprehensive plan for green growth, which further supports economic recovery and ensures more sustainable development.
He pointed out that the budget for next year continues the state’s investment in increasing spending, as well as in capital projects.
“By increasing salaries and pensions, we ensure consumption, and only for capital investments in the budget for 2022 we have planned 4.1 million euros, which means that we continue large projects – construction of highways, construction of hospitals, schools, water treatment plants, water supply and sewerage network. All this will further boost the growth of our GDP, that is, make our country even more attractive and safer for business, as well as for even more investments,” said Mali.
The Minister concluded that Serbia is doing everything to progress as quickly as possible and to make its citizens a more beautiful and quality place to live, RTV reports.