What the near economic future of Serbia will look like depends on – the corona. If the pandemic subsides by the end of the year, according to the forecasts of the International Monetary Fund, two years of high economic growth await us, during which the imbalances created during the Covid crisis in the budget will be alleviated.
The “black scenario”, however, takes into account the serious “return” of the corona not only to Serbia, but also to the countries with which we have the largest trade, which means new, strict protection measures, declining domestic demand, lower inflows of foreign investment and remittances and more expensive borrowing for countries like ours.
Although we do not currently have a classic arrangement with the International Monetary Fund, their delegation comes to Serbia every three months to assess how our country is implementing the economic program agreed under the Policy Coordination Instrument (PCI).
At the end of August, the fourth, penultimate “review” of the results of Serbia’s economic program was successfully completed, and the IMF Board of Directors then announced that the Serbian authorities offered a “strong, timely and comprehensive response” in the fight against the coronavirus pandemic.
The IMF team prepared a comprehensive report and analysis of current and potential developments in the Serbian economy, taking into account that, on the one hand, everything can go according to plan, but also that re-strengthening the epidemic in Serbia and the world would disrupt all previous plans and trends.
– A favorable scenario implies that the gross domestic product will be negative this year, ie it will decrease by 3% compared to last year (or “have a negative growth”, as politicians like to say). Next year, in 2021, the deficit should be more than compensated, since the IMF forecasts growth of 6%, and even more in 2022.
– As far as inflation is concerned, prices should not grow by more than 1.5 percent this year, primarily due to the low price of oil on the world market and weak domestic demand.
– This year, the IMF expects a weaker inflow of foreign direct investments compared to 2019, when more than 3 billion euros arrived in our country in the name of investments. The same goes for remittances, and the World Bank warned in April that about 700 million euros less could arrive in Serbia during this “crown year” in the name of remittances from our people who work abroad.
The IMF’s favorable scenario is based on the assumption that the epidemic will subside during the fall and winter, but as the coronavirus has already “surprised” us in June, and that experts warn of a “third peak” and a new increase in the number of infected during the fall, in mind and what the “black scenario” would look like in Serbia.
– For a start, in an unfavorable variant, new hotspots of the epidemic are appearing, not only in Serbia, but also in the countries with which we have the largest trade exchange. This entails the entry into force of strict protection measures.
From an economic point of view, the IMF estimates that Serbia would face a growth in public debt of more than 60 percent of GDP, while at the same time the need for new borrowing would increase, with a reduction in foreign exchange reserves.
– In addition, instead of a 3 percent drop in GDP this year, we would face a 6 percent drop, while a “return to zero” would take at least two years: according to the IMF forecast, in 2021 we would have a “symbolic” growth of 2 percent, which would accelerate GDP growth to 4 percent in 2022. Such a scenario would have particularly negative consequences in the automotive sector, as well as in tourism,” warns the IMF in its analysis of the “black senarium”.
– Due to the lack of “fiscal space”, there would be no money in the budget for additional spending in order to mitigate the negative consequences of this scenario. The inflow of foreign direct investments would decrease not only this year, but also next year, and the same applies to remittances, Kamatica reports.
What can the state do if the “black scenario” happens?
According to the IMF team, these are some areas that the state should monitor and, if necessary, react to:
1. To provide appropriate health care
2. To devise targeted measures to help the most deprived, including the “expansion” of existing social policy measures 3. To provide targeted support to key economic sectors and companies
4. To assess whether there is room for reallocation of budget funds
5. To provide access to additional liquidity in the domestic market and review the policy of interventions in the foreign exchange market
6. To closely monitor the banking system and problematic state-owned companies, including Air Serbia
