Thanks to measures to overcome the crisis caused by COVID-19, Serbia managed to achieve the smallest drop in GDP in the whole of Europe
A coronavirus pandemic is underway around the world, which, in addition to human lives, is taking many countries’ economies into the abyss and blackness. The economic systems are overburdened by the consequences of the pandemic, and many countries have had to increase their borrowing because of that, and some of them have directly helped the economy with money and various types of incentives. This year, there is almost no country that has not borrowed and increased its public debt.
The last time Serbia borrowed was at the end of November, when it realized the issue of ten-year Eurobonds in dollars on the international financial market – one billion and 200 million dollars at an interest rate of 2.15 percent. The largest part of the funds (900 million dollars) will be used for early repayment of more expensive Eurobonds from 2011 at interest, ie a coupon rate of 7.25 percent. This year, the public debt increased by 24 to 27 billion euros by the end of October. When you look at the share in relation to the gross domestic product, it is 57.7 percent.
It is very important to maintain this type of borrowing and increase of public debt within acceptable limits, and in the case of Serbia, it is 5.1 percentage points of growth. The debt of Slovenia increased the most, followed by Croatia and Slovakia – in double digits. All these countries have a public debt higher than the criteria prescribed by Brussels. The director of the Republic Bureau of Statistics, Miladin Kovacevic, said on that occasion that it speaks of a high rating, that there is no threat of any debt or public finance crisis, or a cessation of growth after the year of the epidemic.
Serbia’s borrowing during the pandemic was justified because the money was spent and invested in the development of health infrastructure, so in the middle of the “fiercest” fight against coronavirus, two covid hospitals were built in Batajnica and Krusevac, and works on the reconstruction of the Clinical Center of Serbia are underway. Clinical Center of Vojvodina, Infectious Diseases Clinic in Belgrade, KBC Bežanijska kosa, as well as hospitals in Arandjelovac, Smederevska Palanka, Prokuplje, Loznica, Vranje, Pirot, Kikinda and Ćuprija. What is very important to mention is the fact that the entire health infrastructure will be available to the citizens of Serbia even after the exit from the epidemic.
The forecasts are promising, the growth of the Serbian economy is inevitable
According to the latest projections made by the European Commission and the IMF, Serbia records the smallest drop in GDP in Europe of only 1.8 and 1.5 percent, respectively. Countries in the region have a larger decline than Serbia, so Bulgaria is in the red at 4 percent, Northern Macedonia at 5.4 percent, Hungary 6.1 percent, Bosnia and Herzegovina 6.5 percent. Croatia recorded a decline of as much as 9 percent, while Montenegro has a decline of 12 percent.
Serbia is also followed by large European countries, such as Germany, which has a decline of 4.1 percent, and the largest decline in GDP is recorded by Spain of as much as 12.8 percent. More precisely, according to those projections, the Serbian economy will end this year with the best result in the global and European framework, ie with a minimal drop in GDP, while the pandemic “knocked out” a large number of other countries.
At the same time, the fund predicts that the Serbian economy will grow by 5.0 percent next year, and by 6.0 percent in 2022, while the European Commission forecasts Serbia to grow by 4.8 percent next year, and 3.8 percent a year later. On the other hand, the countries in the region, as well as in Europe, the IMF and the EC predict a huge decline, with, for example, Montenegro forecasting a recession of as much as 14.3 percent.
Europe – state aid to the economy is a good stimulus for the economy despite the increase in debt
The latest statement of the President of the European Central Bank, Christine Lagarde, testifies to that, stating that her biggest fear is not how much the European Union will accumulate debts, but that the governments of individual countries could suddenly stop stimulating measures aimed at the economy.
– Programs of this kind must be gradually and carefully relaxed. Although the economy is beginning to improve and recover, politicians should not withdraw support too soon. The ECB believes that it should last “in the long run”. I do not think that the states will borrow too much to support their economies this year – Lagarde pointed out.
Governments have set aside billions of dollars in aid over the past year to mitigate the economic shock caused by the kovida-19 pandemic, with the support of central banks such as the ECB. European leaders also approved a 1.8 billion-euro economic recovery package and a budget to help boost EU economies once the crisis is over. In its latest forecast, published in December, the ECB predicted that the European economy would grow by 3.9 percent in 2021, and that production would reach pre-pandemic levels by mid-2022.
The European Central Bank states that there are two keys to improving the economic situation in each of the eurozone countries, but also those outside it. Mass vaccination and economic assistance programs are the two most effective models for resolving the economic woes caused by the consequences of the coronavirus pandemic. Vaccination in the European Union itself is quite slow and it is a “stumbling block” and economic recovery, but as far as Serbia itself is concerned – vaccination is in full swing and it is evident that it will suit our economy as well. Another key to recovery is help programs. The EU itself has eased fiscal rules, and Brussels is borrowing on behalf of countries in poor economic position. Serbia, which is not yet a full member of the EU, implements aid programs through direct financial aid to citizens and the economy. This type of “subsidizing the economy and supporting the system” leads to additional indebtedness, but not to the collapse of the economy.
Unlike the EU, the Serbian economy, according to the data of the National Bank of Serbia, had a moderate growth of indebtedness in 2020. Regardless of when the coronary virus pandemic will end, it is quite certain that the debts, which were made for the sake of “survival” of states, citizens and the economy, will remain, but will not be “economically fatal”.
– The share of corporate debt in GDP at the end of last year, compared to the fourth quarter of 2019, increased by only 2.3 percentage points, to the level of 26.1 percent. The debt of the economy is still almost a quarter lower in relation to the record indebtedness of 33.5 percent from 2012. It includes the total claims of the domestic banking sector towards public companies and companies that include corporate bonds, as a new type of financing of the economy that started in September last year. Nothing in the conclusion would change even if we increased this debt for cross-border borrowings of companies. Available data indicate that Serbia maintained the high efficiency of the financial market, credit activity and support to the economy during the difficult 2020, – said Ivan Nikolic, Director for Scientific Research Development of the Economic Institute in Belgrade.
During 2020, the Government of Serbia allocated more than 5.1 billion euros through several aid packages to the economy, especially to small and medium enterprises, according to official data from the Ministry of Finance. As could be heard among economic experts in Serbia, the package of the Government of Serbia was extremely “extensive” and corresponded to the economic potential of the domestic economy. Aid of about 12.7 percent of GDP was the largest in the region – below Serbia, with the help of the state in combating the negative consequences of the corona crisis, were countries in the EU, such as Romania, Bulgaria, Croatia, the Czech Republic and Latvia.
Vaccination, which is going at a great pace and measures to help the economy announced by the state for the next three months by giving an additional three times half the minimum, will additionally have a positive impact on economic and economic decision makers in the country, as well as foreign investors. solve us sooner than in other countries in the world and that the light at the end of the tunnel is getting closer and we can slowly start with more serious plans to continue investing, Srbija Danas reports.
