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Examining the Balance of Payments in the Republic of Serbia

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The current account deficit for the period of January–August 2023 amounted to 697.9 million euros (2,371.1 million euros or 77.3% less compared to the same period last year when a deficit of 3,069.1 million euros was recorded). The reduced current account deficit is primarily a result of a smaller deficit in the overall foreign trade balance (3,124.3 million euros or 58.0% less) and a higher net inflow of remittances from abroad (192.6 million euros or 7.7% more).

Balance of goods and services

Compared to the period January-August 2022, the deficit of the foreign trade in goods has decreased by 2,569.8 million euros or 38.8%, reaching 4,059.6 million euros. This reduction is primarily attributed to the increase in the export of machinery and electric energy, coupled with a significant decrease in the import of energy sources. The balance of trade in services recorded a surplus of 1,793.4 million euros (an increase of 554.5 million euros or 44.8%). The positive balance in trade in services was mainly influenced by the growth in the export of telecommunication, computer, and information services (an increase of 570.7 million euros or 34.7%).

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Primary Income Account

The deficit of primary income (primary income includes compensation of employees and income from investments – direct, portfolio, and other investments – as well as income from foreign reserves) for the period January–August 2023 amounted to 2,380.9 million euros (an increase of 819.9 million euros or 52.5%). The larger deficit in primary income is primarily the result of a higher net outflow (net outflow represents the difference between expenses (outflows) and income (inflows)) of income from direct investments, which amounted to 1,933.8 million euros (an increase of 534.3 million euros or 38.2%). This includes 1,131.2 million euros (an increase of 471.7 million euros or 71.5%) related to the net outflow of income from dividends, 707.5 million euros (an increase of 83.1 million euros or 13.3%) related to the net outflow of income from reinvested earnings, and 95.1 million euros (a decrease of 20.5 million euros or 17.8%) related to the net outflow of income from interest.

The net expenses (outflows) related to income from direct investments amounted to 2,104.0 million euros (an increase of 566.1 million euros or 36.8%). This includes 1,221.7 million euros (an increase of 466.8 million euros or 61.8%) for outflows related to dividends, 783.6 million euros (an increase of 118.1 million euros or 17.7%) for outflows related to reinvested earnings (expenses related to reinvested earnings are treated as outflows because they are always available to the owner and can be withdrawn from the country at any time), while 98.7 million euros (a decrease of 18.7 million euros or 16.0%) is related to outflows due to interest. The net outflow of interest from portfolio investments was 200.1 million euros (an increase of 26.6 million euros or 15.3%), while the net outflow of interest from other investments amounted to 398.1 million euros (an increase of 187.4 million euros or 88.9%).

The secondary income account

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The surplus on the secondary income account amounted to EUR 3,949.2 million (an increase of EUR 66.7 million or 1.7%). Positive balances on the secondary income account were mainly influenced by private sector inflows: a net inflow of workers’ remittances totaling EUR 2,701.1 million (an increase of EUR 192.6 million or 7.7%), a net inflow of other personal transfers (including pensions from abroad) amounting to EUR 586.0 million (an increase of EUR 25.1 million or 4.5%), as well as a net inflow of other current transfers (including receipts from trade with Kosovo and Metohija) totaling EUR 449.8 million (an increase of EUR 34.9 million or 8.4%).

The financial account

The net inflow from financial transactions amounted to EUR 393.1 million (a decrease of EUR 3,039.4 million or 88.5% compared to the period January-August 2022). This inflow is mainly derived from foreign direct investments, government borrowing through the issuance of Eurobonds, net borrowing by the government and enterprises through financial loans, as well as from the net inflow of cash and deposits.

Foreign direct investments

The net inflow of foreign direct investments (FDI), representing the difference between the inflow of FDI from non-residents to Serbia and the outflow of FDI from residents to foreign countries, amounted to 2,578.4 million euros in the period from January to August 2023 (an increase of 97.8 million euros or 3.9%).

The inflow of FDI from non-residents to Serbia during the period from January to August 2023 amounted to 2,782.6 million euros (an increase of 121.5 million euros or 4.6%).

o gain a more comprehensive understanding of the effects of Foreign Direct Investments (FDI), it’s important to consider that the total outflow of primary income from FDI amounted to 2,104.0 million euros. This includes 1,221.7 million euros in dividends, 98.7 million euros in interest payments, and 783.6 million euros in outflows due to reinvested earnings, representing the retained earnings of foreign-owned companies that were not paid out to owners.

If we subtract the total outflow of primary income from FDI expenses amounting to 2,104.0 million euros from the inflow of 2,782.6 million euros generated by FDI from non-residents to Serbia, the net clean inflow from FDI from non-residents to Serbia would be 678.7 million euros (a decrease of 444.5 million euros or 39.6% compared to the period from January to August 2022).

Portfolio Investments

The net inflow of portfolio investments (Portfolio Investments – PI, encompassing investments in equity and debt securities. In our case, PI mostly refers to investments in government debt securities) amounted to 1,197.5 million euros (an increase of 1,005.4 million euros or 523.3% compared to the period January–August 2022). This inflow is primarily a result of the government’s borrowing through the issuance of Eurobonds. Namely, in January 2023, the Republic of Serbia conducted two Eurobond issuances on the international financial market with maturities of five and ten years, totaling 1,594.0 million euros.

Other Investments

The net inflow from other investments (other investments include cash and deposits, financial loans, and trade credits) amounted to 637.3 million euros (compared to a net outflow of 201.8 million euros in the period January–August 2022). Within other investments, there was a net inflow from cash and deposits amounting to 361.5 million euros (compared to a net outflow of 595.9 million euros in the same period the previous year).

Additionally, in the period January–August 2023, there was an increase in the net credit obligations (net increase in financial obligations) of the state (amounting to 1,022.6 million euros, of which 200.8 million euros pertains to drawing the second tranche under the approved Stand-By Arrangement of the Republic of Serbia with the International Monetary Fund in June 2023) and enterprises (amounting to 402.8 million euros), while business banks experienced a reduction in obligations of 596.9 million euros under the same category. During the same period, net receivables of enterprises from trade credits and advances (receivables from unpaid exports and paid advances reduced by obligations from unpaid imports and received advances) increased by 563.4 million euros (compared to an increase of 576.4 million euros in the period January–August of the previous year under the same category).

Foreign Exchange Reserves

There has been an increase in foreign exchange reserves (balance of payments changes in foreign exchange reserves do not include exchange rate changes and changes in the value of gold and SDRs) amounting to 4,085.8 million euros (compared to a decrease of 900.0 million euros in the period January–August 2022). The increase in foreign exchange reserves during January–August was primarily influenced by the interventions of the National Bank of Serbia (NBS) in the domestic foreign exchange market through the purchase of foreign currencies (since the beginning of the year, the NBS has net purchased 2,770.0 million euros) to maintain the relative stability of the dinar exchange rate against the euro.

Additionally, the inflows from the sale of government securities issued in the domestic and international financial markets significantly contributed to the increase in foreign exchange reserves. Moreover, the increase in foreign exchange reserves was notably influenced by inflows from donations, including 148.5 million euros from the European Commission for budgetary support to the energy sector in 2023, as well as inflows from the disbursement of the second tranche under the approved Stand-By Arrangement between the Republic of Serbia and the International Monetary Fund in June 2023.

The most important changes in August 2023 compared to the same month of the previous year

In August 2023, a current account deficit of 100.7 million euros was recorded (31.5 million euros or 23.8% less compared to the same month of the previous year). The reduced current account deficit is primarily a result of a smaller trade deficit amounting to 261.0 million euros (295.9 million euros or 53.1% less). Within the primary income account, there was a net outflow of income from direct investments amounting to 345.1 million euros (167.5 million euros or 94.3% more), while the secondary income account recorded a net inflow of remittances from foreign workers amounting to 440.1 million euros (44.2 million euros or 9.1% less).

The inflow of foreign direct investment (FDI) into Serbia amounted to 294.3 million euros (294.2 million euros or 50.0% less compared to August 2022).

Within other investments, in August 2023, there was an increase in the net credit obligations (net increase in financial liabilities) of the state (amounting to 365.2 million euros) and businesses (amounting to 23.4 million euros), while business banks experienced a reduction in liabilities by 80.3 million euros. In the same month, the net receivables of businesses related to trade credits and advances (receivables from unpaid exports and paid advances reduced by obligations from unpaid imports and received advances) increased by 97.0 million euros.

Additionally, in August, there was an increase in foreign exchange reserves amounting to 432.4 million euros. The growth in gross foreign exchange reserves is primarily a result of the net purchase of foreign exchange by the National Bank of Serbia (NBS) in the domestic foreign exchange market (inflow of 315.0 million euros) and the utilization of loans by the Republic of Serbia, with a net amount of 204.2 million euros.

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