Over the past 40 years, Serbia has experienced significant political and economic upheaval, with cycles of crisis, reform, and stabilization. The transition from a self-governance system to a market economy has been notably prolonged compared to other Central and Eastern European countries and former Eastern Bloc nations.
Pavle Petrović, professor emeritus, president of the Fiscal Council, and a corresponding member of the Serbian Academy of Sciences, has recently published a book titled “Macroeconomic Crises and Reforms in Serbia 1980-2023: Econometric Analysis.” This work, published by SANU, employs econometric and statistical methods to provide an accessible examination of Serbia’s economic phenomena. It covers the period from the balance of payments crisis of the 1980s through the hyperinflation of the 1990s, the global financial crisis of 2008, the subsequent public debt crisis, and ongoing economic challenges like slower-than-potential growth and emigration.
Petrović’s book offers a fresh perspective on the hyperinflation of 1993-94 by analyzing daily data. It reveals that during the early stages of hyperinflation, economic agents gradually adjusted their expectations based on previous experiences. Initially, the state could deceive these agents by accelerating money printing, thereby increasing the inflationary tax on those holding excess dinars. However, as the population adapted and recognized the inflationary pattern, they began to act in anticipation of further devaluation, rendering the state’s strategy counterproductive. Eventually, the state faced more harm than benefit from the hyperinflation, prompting attempts to curb it.
Inflation persisted into the late 1990s but at reduced levels compared to the hyperinflation period. Structural reforms initiated in 2001 helped to stabilize the economy and halt inflation. Unlike the earlier era of money printing, inflation in the early 2000s was driven by standard market shocks, such as rising food and oil prices and increased domestic consumption.
Petrović notes that while Serbia’s inflation during this period was more pronounced than in other Central and Eastern European (CEE) countries, domestic factors played a significant role. His econometric analysis identifies state spending linked to political elections as a major driver of inflation, a trend observed in both the 2000s and the 2020s. This inflationary pattern reflects populism rather than the challenges of a nascent democracy.
Petrović’s analysis also shows that while government spending does not significantly boost production, state investments have a considerable positive impact on economic growth, especially during recessions when fiscal policy is crucial. Serbia’s response to the global financial crisis included a reduction in public investments and an increase in current state spending, leading to prolonged recession and uncontrolled public debt growth. It was only with a significant increase in public investments in 2019 that economic growth was effectively stimulated.
The quality of institutions has also been found to significantly impact GDP growth. Despite improvements, Serbia’s economic growth over the last two decades has not been sufficient for the GDP per capita to converge with EU levels, unlike the progress seen in other CEE countries. Petrović’s research underscores the importance of productivity growth in the processing sector as a key determinant of economic performance, providing valuable insights through comparisons with Western Balkans, CEE, and Western European countries.
