After the measures taken to save the economy from the consequences of the corona crisis, new challenges for the economic authorities are stopping the growth of public debt and correcting large imbalances in the budget, the Fiscal Council stated today, expecting a drop in production in 2020.
The health crisis continues, the economy is still in trouble, and the state no longer has so many available resources for strong intervention – especially since it has already irrationally borrowed and spent over 600 million euros to pay 100 euros to adult citizens, the Fiscal Council’s analysis points out.
In such circumstances, the Fiscal Council expects that the decline in production in 2020 could be around three percent.
The budget deficit in 2020 will be a record 7 percent of GDP (about 3 billion euros), if there is no new program to help the economy, while the public debt will exceed the level of 60 percent of GDP at the end of the year. In that way, in one year, all the reduction of public debt that Serbia has achieved in almost three years of pursuing a balanced fiscal policy is annulled.
As it is pointed out, the generally responsible fiscal policy from the previous years, enabled the state to borrow heavily and thus help the economy to overcome the first rush of the crisis.
The Council warns that fiscal policy would have to adjust to the new circumstances, which means reducing the deficit in 2021 to around 2% of GDP in order to stop the growth of public debt and restore fiscal stability, increase government spending on infrastructure and control the growth of public pensions and salaries.
The Fiscal Council even believes that a complete salary freeze would be justified.
The Council points out that if in the second half of the year there is a rigorous restriction of population movement and a ban on work in a number of economic activities, economic activity will be further reduced compared to previous forecasts – so the GDP decline in 2020 would be greater than 3 percent and could amount to about 5 percent.
Serbia’s GDP decline will be smaller than most European countries, primarily due to the structure of the domestic economy, and not better economic policies. Because, in Serbia, a large part of the domestic economy produces basic, existential goods for which the demand for this crisis has not dropped significantly (food, household chemicals).
Thus, the share of agriculture in the economy of Serbia is about 7.5 percent, which is more than twice as much as in the countries of the EU member region.
Unlike Serbia, the economies of developed European countries rely more on the production of products and services of higher added value (automotive industry, machinery and equipment, household appliances, tourism) for which demand has fallen sharply in the crisis. Therefore, in more developed countries, a significantly larger decline in production is expected in 2020 than in Serbia.The Fiscal Council estimates that the economic downturn in 2020 will lead to a reduction in the number of employees by 30,000-50,000.
The Council also believes that the frequent predictions of state officials that the average salary at the end of 2025 will reach 900 euros were not credible even before this crisis.
The eventual new package of assistance to the economy should be far smaller than the first one, selective and temporary, according to the analysis of the Fiscal Council, Danas reports.
