World Bank declares Serbia as reform leader in South East Europe

Belgrade, Serbia (Serzhile, CC BY-ND)

The World Bank's Doing Business List has ranked Serbia 43rd out of 190 countries, the reform leader in South East Europe.

Serbia’s Prime Minister Ana Brnabić met in Sofia with Chief Executive Officer of the World Bank Kristalina Georgieva and “agreed that Serbia has achieved macroeconomic stability and financial consolidation in the past few years owing to comprehensive economic reforms that are consistently being implemented.” The meeting focused primarily on the projects of the World Bank in Serbia relating to the fields of infrastructure, energy, health, education, public administration reform, development of the financial sector and small and medium-sized enterprises, the government said.

Brnabić informed Georgieva about progress in implementing the World Bank’s Program “Strategic Framework for Partnership for the period 2016-2020”, focusing, among other things, on fiscal sustainability, financial and macroeconomic stability and strengthening of institutional capacity. Brnabić and Georgieva also discussed cooperation in the Western Balkans region and the prime minister pointed out that this cooperation is one of the main priorities of the Serbian government. She added that Serbia is committed to becoming stronger because building a common economic area in the Western Balkans region will increase economic growth, reduce unemployment and improve the standard of living of all citizens of the region.

When it comes to cooperation between Serbia and Bulgaria, the Prime Minister pointed out that the construction of the gas pipeline between the two countries is one of the priority projects in the field of energy, whose realization provides for diversification of directions and sources of supply. She explained that this will improve the security of supply for Serbia, Bulgaria and the region as a whole. Serbia puts great importance to improve cooperation with Bulgaria in the development of road and railway infrastructure, especially the construction of the Nis-Sofia motorway, as part of Corridor 10, and the reconstruction and modernization of the Nis-Dimitrovgrad railway. 

EBRD urges Belgrade to deepen public sector reform

Serbia’s government should deepen the public sector reforms through privatization, restructuring of state-owned enterprises (SOEs), and improved efficiency of public administration, the European Bank for Reconstruction and Development (EBRD) said.

“Higher predictability of the business environment, lower para-fiscal charges, and an easier access to finance would support entrepreneurs and small and medium-sized enterprises (SMEs) the most,” the EBRD noted in its Transition Report 2017-2018.

After bringing down the level of non-performing loans (NPLs), the focus now should be on more efficient judicial processes, improved out-of-court restructuring, and an easier access to NPLs for a broader range of potential investors. Despite the recent increase in dinar deposits and household dinar loans, Serbia is still among the most euroised countries globally, the EBRD said.

NPLs have dropped significantly in the past two years but remain high by regional standards while long-term debt of over-indebted companies is around 25 per cent of GDP, the bank noted.

Room for further improvement of business climate still remains in several areas, most notably in protecting minority investors, resolving insolvency, getting credit and electricity, as well as in enforcing contracts. The “top five” most problematic factors for doing business in Serbia are tax rates, access to financing, inefficient government bureaucracy, corruption and policy instability, according to the report.

The rightsizing process of public administration continued, resulting in 22,000 people leaving from the end of 2014 to the end of 2016, close to the envisaged level of 25,000 to 30,000 in 2015-17. However, the current civil service framework still does not guarantee the neutrality of the public administration, merit-based recruitment, promotion and dismissal procedures, the bank added.

On the other hand, the fiscal adjustment in Serbia has overperformed. This reflects consistent application of spending cuts introduced earlier as well as rising revenues in 2016.

The EBRD expects Serbia’s GDP growth to slow to 1.8 per cent in 2017 from 2.8 per cent last year. Although macroeconomic stability has been reached, Serbia’s public debt, which has reached 65 per cent of the national GDP, is still too high, and Serbia’s economy is not strong enough to permanently sustain the current macroeconomic stability, Head of the IMF mission for Serbia James Roaf’s exclusive interview for Diplomacy & Commerce Magazine.

An additional reason for caution is that in the past, Serbia has had a bad experience with “releasing its fiscal brakes” after the end of the arrangements with the IMF, which usually resulted in a sudden increase in employment in the country, an unsustainable increase in public spending (primarily pensions and public sector wages), as well as stopping public reforms and privatization of state-owned enterprises. This time around, we should not allow populist measures and abandoning reforms to exacerbate economic imbalances, because what usually happens after that is that we have to go through a period of painful stabilization (along with the IMF) which is a road to nowhere.

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