The growth of the gross domestic product (GDP) of Serbia this year could be between three and four percent, the editor-in-chief of the economic publication “Quarterly Monitor”, Milojko Arsic, estimated today.
“A smaller decline in 2020 increased the base with which the results from 2021 will be compared, and in addition, it can now be seen that the duration of the epidemic, and thus the restrictions, will be somewhat longer, and the recovery of European economies slower,” Arsic said due to which the projected growth of the Government of Serbia of six percent cannot be expected.
The announced new anti-crisis package, which is planned in the first half of 2021, will increase public expenditures, as he said, by about a billion euros, so the fiscal deficit this year could increase to five or six percent of GDP, instead of the planned three percent.
“It would be economically justified and fiscally responsible to focus new anti-crisis measures only on citizens and companies that are strongly affected by the pandemic, instead of continuing non-selective programs,” said Arsic at the promotion of the new issue of “Quarterly Monitor” published by the Faculty of Economics in Belgrade and the Foundation for the development of economics, reports Beta.
In 2021, according to him, public debt will continue to grow so that it will approach 30 billion euros, while the share in GDP will probably exceed the level of 60 percent.
“We estimate that the public debt of Serbia is relatively high, having in mind the level of development of the country and the conditions of borrowing, so accordingly, in the medium term, fiscal policy should be conducted so as to ensure debt reduction below 50 percent of GDP,” said Arsic.
According to him, the Serbian economy proved to be somewhat more resistant to the health crisis compared to other European countries, and the fall in GDP in 2020 was one percent, while in the countries of Central and Eastern Europe it was 3.9 percent on average.
In the EU countries, the average drop in GDP was, as he said, 6.2 percent, and only four European countries, Ireland, Norway, Lithuania and Turkey, had a smaller drop than Serbia.
He added that what is common for the countries that did relatively well in the crisis is that they have a small share of activities in the economy, such as tourism and the automotive industry, which was particularly hard hit by the crisis, and a large share of activities that were not affected by the crisis.
In Serbia, agriculture and the food industry, on which, as he stated, the pandemic left minor consequences, make up about 12% of the economy.
Additional reasons for the smaller decline in GDP are that Serbia entered the crisis with a relatively high rate of economic growth, as well as applying relatively strong fiscal and monetary stimulus, while epidemiological measures were mild for most of the year;
According to Arsic, employment will be slightly reduced in 2020, and only in the informal part of the economy, and the reason is that the decline in GDP was small, so it did not require a reduction in the number of employees.
“It is expected that the growth of unemployment will be gradual and that it will last for a year or two after the end of the pandemic,” said Arsic.
Wages in the private and public sector in Serbia, as he said, after stagnation in 11 months, had a high growth in December 2020, although largely seasonally.
According to Arsic, the transferred growth of salaries from 2019 was high, so the unit labor costs in 2020 increased by 8.8 percent.
In 2020, foreign trade was reduced, so the deficit is slightly below two billion euros, which is 4.3 percent of GDP and was about 1.1 billion euros lower than in 2019.
Arsic said that the prices of products that Serbia imports, primarily oil, have dropped significantly, while the prices of products that are exported, agricultural products and metals, have increased, which has affected the reduction of the foreign trade deficit.
He added that foreign direct investments fell by 20% last year, but were nevertheless more than enough to cover the current account deficit. According to Arsic, the nominal exchange rate remained virtually unchanged throughout 2020, although there were strong depreciation pressures during the second and third quarters, to which the National Bank of Serbia responded by selling euros from foreign exchange reserves.
“Although there are benefits from preserving the stability of the exchange rate during the crisis in a highly euroized economy like the Serbian one, the policy of fixing the exchange rate is not good in the long run because it leads to continued real strengthening of the dinar,” Arsic said.
He added that the dinar really strengthened against the euro in 2020 by 1.5 percent, and since 2016 by over eight percent in total, “which was the only case in Central and Eastern Europe”.
According to Arsic, monetary policy measures in 2020, such as reducing the reference interest rate and creating additional liquidity through swaps and repo auctions, helped preserve the liquidity of the domestic economy, thus preventing, or at least postponing, mass corporate bankruptcies and job losses.
He said that fiscal policy also reacted decisively and strongly to the crisis, which is why in 2020 a record deficit of a consolidated state of around 3.8 billion was achieved euros, which is 8.1 percent of GDP.
“The fiscal deficit in Serbia is higher than the average of the CEE countries, primarily due to a larger package of anti-crisis measures, some of which are well designed, while for others it cannot be said,” said Arsic.
He added that the public debt at the end of 2020 reached 26.7 billion euros, which is 57.4 percent of GDP, and with the included unguaranteed debt of local governments exceeds 58 percent of GDP.
“The growth of public debt in 2020 was significantly lower than the fiscal deficit, due to the strengthening of the dinar against the dollar, as well as because part of the deficit was financed by revenues from concessions and privatization,” said Arsic, Politika reports.
