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.

 

Growth moderated to 1.2 per cent year on year in the first half of 2023 as household consumption and retail trade contracted in line with elevated inflation. Agriculture posted strong annual growth rates, from a low base in 2022, a year which was marked by drought, while industrial output was muted, reflecting weak external demand. Following a protracted contraction in construction, the sector rebounded and supported growth in the second quarter of 2023 as several large public infrastructure projects were launched. The current account deficit narrowed significantly in the first half of 2023 thanks to declining imports, lower global energy prices, and significant electricity exports. Inflation remained elevated, at 12.5 per cent in July 2023, peaking later in Serbia than in other Western Balkans economies and the eurozone. Inflation has been slower to decelerate, partly because of upward adjustments in regulated energy prices, a structural benchmark under the Stand-By-Arrangement (SBA) with the IMF. The first review under the SBA was completed in July 2023, with energy sector reforms progressing as envisaged but with a delay in adopting a new law on state-owned enterprises, one of the benchmarks of the programme. Fiscal policy remained expansionary, as the authorities increased pensions and some public sector wages, set a price cap on 20 essential food and household items and provided one-off financial support to individuals. An increase in excise duties on fuel, tobacco, alcohol and coffee from October 2023 is expected to boost revenues. GDP growth is forecast to reach 1.8 per cent in 2023, reflecting muted global growth prospect and high inflation, before rising to 3.5 per cent in 2024, a rate closer to the medium-term potential.