The World Bank came out with its autumn growth projection last week, and Serbia is expected to fall by three percent this year and grow by 2.9 percent next year.
This is significantly less than the state or even the IMF predicts. However, even with this assessment, Serbia is significantly above the region of the Western Balkans, whose average drop is 4.8 percent this year.
This report also had an introduction in the form of a statement from the NBS, which calls into question the intentions of the World Bank and the EBRD, given that both gave more pessimistic forecasts for Serbia than what the state expects.
Steven Ndegwa, head of the World Bank office in Serbia, talks to Danas about the reasons for the disagreement.
The World Bank projection is significantly more conservative than the projection of the Government and the NBS (-1%) and the IMF, which corrected its estimate to minus 1.5% a few days ago. Where do so many differences in estimates come from?
Our projections in principle rely on a more conservative assessment of global recovery and were made somewhat ahead of others because data for all world economies are collected at the same time.
We expected the recovery to be slower, and since Serbia is very integrated into the global economy, what is happening on international markets is also affecting your economy. It is the main driver of our projections.
We are particularly aware of the extreme uncertainty regarding all countries, so we think that a more conservative assessment is in place, of course with respect to other projections, including the government and the NBS. We are constantly collecting data that is published and the projections will be updated the next time.
What is important is that we work together on how to stimulate the economy, to agree on what needs to be done to protect the lives and living standards of citizens in times of turmoil.
We are all on the same page about reforms, about the new growth agenda that we recently discussed with the President, as well as about the “green growth” agenda and the investments in which we are involved. For us, the differences in projections are a matter of analytical differences, but the foundations of the Serbian economy remain as strong as the government’s commitment to reform.
The National Bank issued a statement on the projections of international financial institutions, including the World Bank, where it asked whether it was about objectivity or some other intentions. So, what are your intentions?
We pride ourselves on our technical and objective analysis. It is important for us to provide credible evidence to the global economy, as well as individual economies, to agree on key reforms and areas where governments need assistance.
That is our intention. We are very focused on the growth of the Serbian economy, prosperity and especially on poverty reduction.
I think it is very important not to forget clear common goals and to be ambitious, and that is how for Serbia to achieve growth faster than it has been so far, growth of six, seven percent that would enable doubling the income during one generation.
Did you perhaps perceive that statement as pressure to perhaps change the projection?
Absolutely not. We have extensive talks with the government, often share different analyzes and discuss solutions and policies.
It is a sign of strong and constructive cooperation and I did not experience this as pressure, more as a debate on various analyzes.
There was no request not to publish a projection, nor to change the numbers. After all, everyone is constantly revising projections as new information and data arrive. This is a specific year, and it is so much harder to make projections.
And with a more conservative assessment by the World Bank, Serbia will emerge from this crisis much better than most European countries. What sets us apart?
The Serbian economy has entered a crisis with strong foundations. It entered the crisis after two years of budget surplus and after last year’s growth of 4.2 percent.
So there was a crisis with healthy finances, and in the crisis the aid package was the largest in the region, it was productive and mostly self-financed because government deposits were significant.
We do not expect that this year’s budget deficit will last for a long time, but that it is an unambiguous phenomenon. This is thanks to many reforms that have been implemented in the last five to seven years, starting with fiscal consolidation from 2014 to 2018.
If it were not for that, Serbia would not be able to bring such a package of assistance to the economy now. This speaks in favor of the need to implement fundamental reforms in the coming years.
In the new growth agenda last year, we stated which reforms should be implemented in order to achieve not growth of one, two or three, but six, seven percent.
We think that Serbia is ready for that. Serbia is no longer in the league of countries that grow to three percent, but can move to the league with a growth of five, six or seven percent.
For me, the pandemic is a tragedy, in addition to the fact that lives were lost, and because Serbia was stopped for this one year in order to achieve the goals from the new growth agenda.
Where do you see the risks for the Serbian economy this year and next?
The risks that accompany the Serbian economy are similar to those in other countries in the world in the pandemic. It largely depends on what the foundations of the global economy, of course the local one, will look like, and whether we will find a vaccine in the near future.
For this year, the risk for Serbia is that the package of assistance to the economy, which was very large and mostly ended in September. Now we need to see how companies operate in a situation without that help.
And the internal risks?
We have been talking about internal risks for years. These are issues that Serbia still needs to resolve. It is about registering a company, facilitating business, access to financing especially for SMEs, changes in public companies.
These factors can limit the effect of any stimulus package. We view the government’s position on continuing the reform positively. The president mentioned a growth of six percent. That is the real goal for the medium term. We talked to them about further reforms, public enterprises…
Could this fiscal deficit of 7.6 percent of GDP, as you state in the report, as well as potential liabilities to public and state-owned companies (the report states Air Serbia and Telecom) be a problem in the coming period? How much deficit would you recommend next year?
First of all, the most important thing is to save lives and save the economy. There is no point in having a balanced budget while people are dying.
In conditions of pandemic and crisis, it makes sense to spend as much as one needs to save lives and support the economy.
On the other hand, there are risks. The risk is that consumption growth will not stop. Our global recommendation is that aid be limited and targeted.
In Serbia, state aid has been completed, and in order to consolidate finances, it needs to carefully control the budget. We are not worried about Serbia’s ability to do that, because it has already proven itself.
The World Bank does not recommend a certain amount of deficit, and as far as possible liabilities are concerned, care must be taken, especially with state-owned companies.
How do you assess the reform of state-owned enterprises so far?
We have seen progress in the last five to seven years, but there is still work to be done. We have seen progress in the reform of the Serbian Railways, we support the privatization of Komercijalna Banka, which should be completed by the end of the year.
Overall, reforms are progressing, albeit more slowly than we would like. For example, we always point out that the corporatization of EPS is slow, but there are other companies as well. We have pointed out before that there must be more market discipline in state-owned companies, that they should behave like other companies on the market.
Secondly, the choice of leaders of public companies is also important. The election of the director should be competitive and transparent, as provided by law.
It is important to continue the agenda regarding public companies and when it is implemented, the benefits will come, Danas reports.
