Serbia overview

Enhancing the role and competitiveness of the private sector. Serbia’s level of private sector engagement in the economy is modest even by regional standards. Small and medium sized enterprises (SMEs), which form the backbone of the Serbian private sector, face limited access to finance. The EBRD will thus work to increase private sector competitiveness, with an added focus on the agribusiness value chain. We will seek to assist SMEs in financing projects conducive to sustainable growth. Finally, we will further support pre-privatisation and privatisation alongside strategic investors.

 

Bolstering the banking sector and deepening the financial intermediation. While the financial sector has survived the crisis, its role as a driver of economic growth has been significantly diminished. Credit growth is weak, the share of non-performing loans is significant and the level of euroisation is high. In line with the Joint IFI Action Plan for Growth in Central and South-Eastern Europe, we will seek to help stabilise the financial sector. We will continue our policy dialogue, directly with the National Bank and through the Vienna Initiative 2.0, to encourage local currency lending and improve cross-border cooperation on banking sector issues and help in resolving the problem of NPLs.

 

Developing sustainable and efficient public utilities. Large transition gaps remain in the energy and infrastructure sectors. Other transition challenges include: adjusting tariffs to cost recovery levels, strengthening the regulators’ capacity, commercialising and restructuring public enterprises, and increasing private sector participation. The EBRD will focus its efforts on accelerating the implementation of its already financed projects and, given the limited fiscal space, will carefully select new investments. In the energy sector in particular, we will aim to continue to play a key role in promoting energy efficiency and renewable energy, while assisting with replacing the aging electricity generation capacity and bringing power generation into compliance with the EU environmental standards.

 

The economic recovery witnessed in 2021 continued into the first half of 2022, albeit at a slower pace, with output expanding by 4.3 and 3.9 per cent year-on-year in the first two quarters, respectively. As prices increased and monetary policy tightened, household consumption continued to lead growth, though the rate slowed to 4 per cent in real terms in the second quarter following a 7 per cent expansion in the first. While investment remained muted in the second quarter of the year, exports continued to grow strongly, by 20 per cent year-on-year in the second quarter, led by goods exports as industry expanded by 4.6 per cent. Globally rising energy prices were reflected in a rising import bill and a widening of the current account deficit in the first half-year. Global rises in food and oil prices helped drive the annual inflation rate in Serbia to 13.2 per cent in August 2022. In response, the central bank has increased the key interest rate six times in 2022, from 1 per cent in March to 3.5 per cent in September. Various measures on basic foodstuffs, wood pellets and oil are in place to support the budgets of the most vulnerable households. While electricity tariffs were moderately increased, the upcoming winter season will be a test for the energy sector and the government’s fiscal space. GDP growth is projected at 3.3 per cent in 2022 and 2023, with risks to the near term reflected in elevated inflation, weighing on disposable incomes, and worsening external demand due to the anticipated slowdown in EU markets.