The Governor of the National Bank of Serbia (NBS), Jorgovanka Tabakovic, said today that the fact that the rating agency Moody’s stated in the regular annual report on the Serbian economy that it showed a high degree of resilience during the pandemic was a confirmation that the economic response to the crisis was adequate.
“The report by Moody’s is another confirmation that Serbia’s economic response to the crisis caused by the pandemic was adequate and that the package of economic measures we adopted was timely, comprehensive and well implemented,” Tabakovic said, her cabinet said.
According to the NBS, Moody’s estimated in the annual report that the Serbian economy showed a high degree of resilience even in the conditions of the pandemic, and that the preserved stable macroeconomic environment would support strong economic growth after the global slowdown caused by the corona virus.
According to the agency, Serbia’s credit rating is supported by a relatively large and diversified industry sector, which has proven successful in attracting foreign direct investment in previous years.
The agency also stated that the prospects for increasing the credit rating of Serbia for the next period are positive, having in mind the strong growth prospects in the medium term.
Moody’s is said to point out in particular that low and stable inflation, as well as improvements in the monetary policy framework, have greatly contributed to the stabilization of the macroeconomic environment in previous years.
The Agency assessed that the preservation of inflationary pressures at a low level was supported by the achieved and preserved relative stability of the exchange rate, as well as the anchored inflation expectations.
The report states that, thanks to the acquired credibility of the central bank and the created environment characterized by low and stable inflation, space has been created for the NBS to respond to the pandemic in a timely manner and provide favorable financing conditions for companies, as well as to ensure adequate liquidity of the banking sector.
It is also pointed out that the role of the domestic currency in the economy has significantly increased in the past few years, but also that this process has been gradual and carefully weighed, which is why price stability has been achieved.
The report estimates that the banking sector entered the crisis relatively strong, with adequate levels of capital and liquidity.
Also, it is stated that a significant reduction in the level of non-performing loans (NPLs) was achieved from about 21 percent in 2015 to about four percent of total loans in the first quarter of this year.
The reduction of NPLs was largely due to the implementation of the Strategy for Resolving Problem Loans, within which the NBS played a significant role, as well as the overall macroeconomic environment that is conducive to business.
Moody’s stated that the growth of the gross domestic product (GDP) of Serbia in the previous two years was strong and that significant investments, especially in the construction sector, were one of the main growth factors.
“The fact that Moody’s expects economic activity to recover in the second half of the year, followed by strong GDP growth of six percent next year, confirms that all international financial institutions recognize the resilience and excellent medium-term prospects of the Serbian economy,” Tabakovic said.
The agency estimated that Serbia’s economic recovery from the consequences of the pandemic will be accelerated, thanks to the comprehensive response of monetary and fiscal policy.
Moody’s stated that the authorities in Serbia have adopted and implemented one of the largest packages in the region, which included numerous measures to support households, as well as measures aimed at maintaining employment through direct transfers, wage subsidies, a moratorium on loan repayments, and interest rate cuts.
As a confirmation of the assessment of greater resilience of the Serbian economy, Moody’s pointed out that the export of goods from Serbia has already shown signs of recovery since May.
In its report, the agency stated that the current account deficit had been increasing in previous years due to increased imports of equipment for the needs of industry, as well as that it was accompanied by high inflows of foreign direct investments.
“They are projecting a reduction of the current deficit for this year,” the NBS stated.
In favor of greater resilience, the agency, as stated by the NBS, pointed out that the current deficit last year, for the fifth year in a row, was completely covered by foreign direct investment (FDI) and assessed that their inflow was strongly diversified by sectors and regions.
Based on everything, the agency concluded, as stated by the NBS, that Serbia’s credit rating could be increased in the coming period if, with the existing strong growth prospects in the medium term, the state continues with the policy of reducing public debt.
“Continuation of the policies we pursue and consistency in the implementation of measures aimed at increasing the living standard of citizens, will certainly influence the decisions of rating agencies and increase credit ratings,” said the NBS governor, Danas reports.
