The small current account surplus in the first quarter in the second turned into a deficit of 570 million euros or 4.4 percent of GDP, primarily due to the deficit in trade of 1.6 billion euros. Milojko Arsic, professor at the Faculty of Economics in Belgrade, at the presentation of the Quarterly Monitor, assessed that the growth of import prices, primarily of energy and raw materials, contributed the most to that.
“Exports and imports recovered quickly and exceeded the pre-crisis level by almost 20 percent. During the second quarter, there was a high inflow of foreign capital, and foreign direct investments amounted to 731 million euros (5.6 percent of GDP), while the net inflow was 428 million due to capital outflows based on interest and dividends,” said Arsic.
He pointed out that the foreign debt has reached a record amount of 32.2 billion euros so far, which has increased by 4.1 billion euros since 2019. In September, the state borrowed an additional 1 billion euros on foreign markets. The ratio of foreign debt to GDP is 69 percent, which is not the highest so far, due to, as Arsic explains, the strengthening of the dinar against the euro.
Prevented strengthening of the dinar
Inflation reached 4.3 percent in August, close to the upper limit of the NBS target, and Arsic points out that most of Europe has a similar situation and that governments and central banks still give priority to economic recovery and continue with expansionary policies.
“They explain inflation only by disturbances in supply and supply chains, but I think that it is biased and that the rise in prices is partly stimulated by high demand caused by expansive fiscal and monetary policy. If the offer is not harmonized with the demand in the next few months, a more restrictive policy can be expected, although that should not be expected this year,” Arsic pointed out.
As for the exchange rate, in the last five years, the dinar has strengthened against the euro by 10 percent, and in the first eight months of this year by 1.8 percent. Arsic believes that the NBS pursues a de facto policy of a fixed exchange rate and intervenes in pressures to weaken and strengthen the dinar.
“From April to August, the NBS bought about a billion euros on the foreign exchange market and thus prevented the strengthening of the dinar. We advocated the thesis that the dinar should weaken, but in the conditions of pressure to strengthen the dinar, this is a good policy,” he said, BiF reports.
