Weekly Briefing, Vol. 46. No. 2 (RS) December 2021
A Summary of 2021 Serbian economy
Summary
Under the pandemic, in last two years, 2020 and 2021, Serbian economy suffered additional pressure. Therefore, Government was constantly working on delivering the plan which would diminish negative consequences, but also be effective in giving an impetus to the stalled economic activities. Interest to revive economic activity also was shown by the European Union which created and offered “Programme of Economic Measures to Mitigate the Negative Effects Caused by the COVID-19 Pandemic and Support the Serbian Economy in 2020 and 2021”.
Internal strengths and/or weaknesses
Faced with deep impact of the crisis caused by the COVID-19 pandemic, Serbian Government, likewise other responsible governments, has created broad programs of support aimed to include wide scope of companies and individuals. Special attention was paid to the most vulnerable ones.
As one may expected, such attitude provoked different opinions even critical ones. Namely, major allegation was that such measures are an act of populism used as mean to preserve support to the governing party.
Notwithstanding that there were such measures, one of the examples is providing direct assistance to the citizens (in first round citizens received 100 Euros, in second 60 or 50 corresponding to their status – employed, unemployed, retired), measures direct towards accelerating economic activities were welcomed by experts. Still, they also have some objections. Given that new set of measures has been announced only two months after the budget has been adopted, there was concern that budget process was carried carelessly. Indeed, the budget for 2021 was adopted in December 2020 and in March was presented program of anti-crisis measures that was not planned by the 2021 budget!
The major concern of Serbian Fiscal Council was that new package of anti-crisis measures would further increase deficit. The planned Serbian fiscal deficit of 7% of GDP is higher than the average for the comparable countries. Namely, other Central and Eastern European (CEE) countries are also facing prolonged epidemic and are increasing their fiscal deficits. However, the fiscal deficit decrease in CEE mostly ranges from 1 to 2% of GDP, compared to 4% of GDP in Serbia. Before the supplementary budget, Serbia had planned a deficit lower than CEE average (which is appropriate, since it suffered less of an impact from the crisis), but with new set of measures its fiscal deficit exceeds CEE average.
Although it is true that the supplementary budget will have a permanent effect on GDP growth, which could exceed 5% in 2021 – however, the same effect could have come with a far lower deficit. Some of the measures might be avoided. For instance, it is irrational to incur additional debt to the tax payers to pay money to the businesses that have not been hit by the crisis. Assistance to the entrepreneurs or companies that were hit by the crisis is justify, but it is difficult to understand and completely impossible to justify decision to pay one half of the minimum wage, per employee, for three months to almost all private enterprises.
It is very likely that such not deeply examined measures have forced the Government to undertake some unpopular actions likewise the adoption of the Law on Personal Income Tax intended to become a tool in securing new sources of revenue. This law was specifically addressed to significant number of freelancers who were practically invisible for Serbian tax system. In order to make distinction between those with minimum and those with maximum income, the law has introduced solutions aimed to protect first group, while those with high and very high income would be progressively taxed. Nevertheless, to the members of both groups fair regulation of social security was granted.
External support
Since making decision to work effectively on joining the European Union, which is a two decades long period, the Republic of Serbia received from this organization over 3 billion EUR of non-refundable aid. This fact marks the EU not only as Serbia’s biggest donor in Serbia, but the country’s prime partner in supporting development and ongoing reforms.
Knowing that, the decision of the EU to design program of supporting economies hit by the pandemic was not surprising.[1] This program of support, signed in 2021, worth over 86 million Euros[2], was focused on mid and long term recovery, but also intertwined with acceleration of Serbian accession to the EU.
Three lines targeted by this plan are: the competitiveness and economy, the environment and good governance.
Under the first line, the competitiveness and economy, 17 million EUR is forecasted to be used in order to support competitiveness of small and medium sized enterprises, particularly in the tourism sector. It is not unusual knowing that small and medium sized enterprises are the backbone of each economy and therefore ther is no need to explain it further. Also, when it comes to the tourism, supporting measures are almost a must considering that due to the pandemic this sector was among the most affected. It is expected that support to tourism will make possible visible economic growth in targeted municipalities, but also to improve social infrastructure and social cohesion and upgrade tourism/cultural facilities and stakeholder’s skills. In connection with these desirable outcomes, it is important to underline that each of them is a part of the Tourism Development Strategy of the Republic of Serbia[3].
The environment is the second line, but it has two components – climate action and energy block. The part related to the climate action is worth of 45.55 million Euros and it represent an innovative facility’s dedicated to the implementation of pilot measures for environmental policy and climate change. All these measures are aligned with the Green Agenda Funds will further support capacity building for Novi Sad Municipality in solid waste management. It will also provide water monitoring units for the water districts of the Danube, Sava and Morava rivers, as well as improved air quality monitoring across the territory of Serbia. Waste water treatment facilities will be built for the cities of Loznica, Čačak and Sokobanja.
The expected results include unlocking the potential for more green investments under Green Agenda, the construction and operation of 3 modern wastewater treatment plants to serve around 160,000 population equivalent. In the targeted cities, wastewater will be fully treated, as compared to current situation where the wastewater is discharged directly without any treatment into rivers.
A second part of this line is the support to the Regional Energy Efficiency Programme dedicated for a window financing projects in Serbia, worth of 9 million Euros. The programme will support projects leading to reconstruct buildings in line with the energy performance standards set out in the Energy Performance of Buildings Directive[4]. Of outstanding importance is the fact that this entire line will be delivered to Serbia in a form of grant which proves environmental issues to be among the top priorities of the EU.
The third line is good governance. It is worth 14 million Euros which will be allocated to support the reforms on governance, acquis reforms and Serbia’s participation to EU programmes.
The EU accession process of Serbia implies ambitious and comprehensive public administration reform (PAR). Bearing in mind that since 2014 PAR is defined in the main strategic documents of the European Commission as one of the three reform pillars in the EU enlargement policy, focus on this horizontal reform – which represents substantially a prerequisite for achieving success in all other sectorial policies – has significantly grown.
The project “Partnership for Public Administration Reform and Public Services in Serbia – PARtnerships” aims to contribute to the creation and implementation of policies in the area of public administration reform ensuring more participatory and citizen-centric design and improving accountability and responsiveness of the Serbian government for the quality of services it delivers. Working both at the level of policy development and community level, the project focuses on improving quality and transparency in designing and delivering the most requested types of public services in the area of health, education and internal affairs.
Public Administration Reform Strategy 2021-2030 and its accompanying Action Plan was made with the assistance of the European Union aiming to support the public administration reforms in Serbia funded by the EU – the project “EU4PAR” and the project “Visibility and Communication PAR”.[5] Aforementioned sum will be allocated to activities that will lead towards the fulfillment of the goal of achieving the good governance.
Conclusion
Unfortunately, likewise previous year, the year 2021 was marked by actions aimed to mitigate effects of the Covid-19 pandemic. Serbian Government has prepared relatively fair response towards the COVID-19 crisis, but the European Union itself allocated significant amount aimed to support national recovery plan and to enhance country’s resilience.
[1] Recovery and Resilience Facility, European Commission, Brussels, https://ec.europa.eu/info/business-economy-euro/recovery-coronavirus/recovery-and-resilience-facility_en, accessed on 30/12/2021.
[2] Ibidem.
[3] “Tourism Development Strategy of the Republic of Serbia” (in Serbian: “Стратегија развоја туризма Републике Србије”), http://www.gs.gov.rs/english/strategije-vs.html, accessed on 30/12/2021.
[4] Directive 2010/31/EU of the European Parliament and of the Council of 19 May 2010 on the energy performance of buildings (recast), https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A02010L0031-20210101, accessed on 30/12/2021.
[5] “Support to Public Administration Reform Under the Par Sector Reform Contract”, EU Projects in Serbia, https://www.euzatebe.rs/en/projects/support-to-public-administration-reform-under-the-par-sector-reform-contract, accessed on: 30/12/2021.