Serbia, Revenues are real, but expenditures are not transparent

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The energy crisis, and apparently also the economic crisis, inflation, rising interest rates and geopolitical instability made the budget for the next year pay special attention to the public.

The budget was calculated assuming real GDP growth of 2.5 percent and average inflation in 2023 of 11 percent, and the deficit will amount to 3.3 percent of GDP, which is a decrease from this year’s 3.9 percent of GDP.

Economist Saša Đogović points out that the budget is without a doubt harmonized with the IMF, and this primarily refers to the macroeconomic projections on the basis of which revenues are planned, as well as the deficit of 3.3 percent of GDP, which represents a decrease compared to this year. 

“The IMF agreed with those general parameters, but there are problems in the content of the budget.” For example, large allocations for security, and if we are talking about capital expenditures, let’s say investments in stadiums in these circumstances are problematic. It is better that that money goes to agriculture for the development of livestock and milk production,” he notes.

Đogović also points out the gap of 1.7 percent of GDP created by the energy sector.

“The budget is burdened by the consequences of the scandal due to the appointment of incompetent personnel in EPS, and in Srbijagas the director can be anyone while the state pours in constantly,” he concludes.

Nenad Jevtović, director of the Institute for Development and Innovation, estimated that the revenue side of the budget was planned realistically, even conservatively considering the assumption of inflation of 11 percent on average.

“It can be expected that inflation will not fall so sharply next year, but gradually.” This is good, because if inflation is higher than planned, it means higher revenues from VAT. On the expenditure side, we see the cancer of the wound of our public finances, namely EPS and Srbijagas. EPS is the biggest challenge and it far exceeds Srbijagas in size. We were lucky that we didn’t import electricity for two months, so that had a positive effect on our balance of payments deficit,” believes Jevtović.

According to him, the positive side of the budget is high capital expenditures.
“The Fiscal Council long ago requested that public investments amount to five percent of GDP, and now we have seven percent.” Another question is whether we need a national stadium or should invest in something else. From the economic point of view, I think that investing in defense, and above all in dedicated industry, is positive. Some machines will be bought and investments will be made in capital facilities, of course with a fence so that these funds are spent on purpose,” he points out, adding that the budget does not show how much money will be spent on the purchase of weapons.

Jevtović believes that the increase in funds for attracting investments to 200 million euros next year is a signal that there may be more foreign direct investments next year.

“It also points to two processes, that we are even more tightly integrated into the German economic space and “nirshoring”, i.e. the shortening of supply chains and the relocation of production closer to Europe,” he assesses.

Milorad Filipović, a professor at the Faculty of Economics in Belgrade, points out that non-transparent budgeting continues.

“It is still not known what our money is going to.” The situation has not improved even one iota compared to previous years.
We continue with deficits, and on the other hand we have the Minister of Finance who says that the state has two billion euros in its account”.

He also commented on the increase in allocations for subsidies for investment incentives.

“Subsidies are given when you have some deficiency in the system and then you use that money to compensate for that deficiency so that investors can make the expected profits.” The bigger the investments, the more shortcomings there are, that is, the worse the business environment.
Subsidies reduce the risk of investing in that country. Therefore, the higher the subsidies, the higher the investment risk,” concludes Filipović.

Economist Vladimir Vučković points out that there are no big surprises in the budget and that it has been agreed with the IMF.

“The increase in wages and pensions is measured.” The deficit is decreasing and that is important. The problem remains non-transparent expenditures and the fact that, even in the preparation of the budget, it is not clear what the items refer to. As well as redistribution of the budget during the year, and now the ground has been set for this to be done in the next year as well,” Vučković assesses.

He adds that investments in capital projects are already large and priorities should be chosen carefully.

“I would like more money to be given to environmental protection and communal infrastructure than to stadiums,” says Vučković.

Petar Đukić, a professor at TMF, points out that claims that we have never seen a higher increase in salaries, pensions or other benefits from the budget should be put in the context of inflation.

“We have a confusion of nominal and real sizes. With inflation of 15 percent, it is not a big increase, and some items that were increased by, for example, 10 percent, will be less realistic than this year. “Inflation is not only imported, but also a consequence of the waste of money by the state,” he concludes.

He also warns that the deficit of 3.3 percent of GDP could be even higher if energy prices rise next year, Danas writes.

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