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12 I Companies & Markets bne October 2021
arrangement (SBA), Serbia had significantly outperformed the targets. There followed two years of growth of over 4%, rising as high as 5.2% y/y in 1Q21.
“Serbia has coped relatively well with the COVID-19 pandemic. The hard-won macroeconomic stability that was achieved prior to the crisis, and the large policy support package that was deployed as the crisis hit, helped mitigate the adverse impact of the pandemic on economic activity. Nonetheless, with the uncertain future course of the pandemic, sustaining
a solid economic recovery should be a policy priority,” commented Tao Zhang, deputy managing director and acting chair of the IMF, in June, at the conclusion of the latest Article IV consultation with Serbia.
Secondly, in contrast to some of its tourism-dependent neighbours like Croatia and Montenegro, which suffered some of the deepest recessions in emerging Europe, Serbia has a diversified economy, with a relatively large industrial sector.
The European Bank for Reconstruction and Development (EBRD) wrote in its latest Regional Economic Prospects report: “The effects of the COVID-19 pandemic on the economy were moderate in 2020. The structure of the economy – limited reliance on tourism and a relatively high share of basic
goods such as food and some chemicals in manufacturing
– combined with large government aid packages and
less restrictive lockdown measures for most of the year, contributed to a GDP contraction of only 1%.”
Finally, while Serbia introduced a strict initial lockdown last spring, this lifted earlier than in most European countries
to prepare for the June 2020 general election, allowing the economy to return to normal by the beginning of the summer.
Fiscal stimulus
Serbia provided the Western Balkans region’s biggest stimulus packages since the start of the crisis, and continued to do so in 2021. Stimulus measures in 2020 amounted to close to 13% of GDP, including fiscal revenue and spending measures of 8% of GDP. The successive packages announced during 2020 included wage subsidies, cash transfers, support for the healthcare sector, tax deferrals and liquidity support to small and medium sized enterprises through credit guarantee schemes.
This pushed Serbia’s estimated 2020 fiscal deficit to a record 8.1% of GDP. Meanwhile, public debt increased by around 5 percentage points (pp) in 2020, to reach 58% of GDP at year- end, according to the EBRD. However, this figure is well below the debt levels in other regional economies such as Albania, Croatia and Montenegro.
“Serbia’s fiscal consolidation efforts in recent years meant that it entered the COVID-19 crisis in a strong fiscal position that allowed it to implement a large support program. The large stimulus package introduced early on helped to limit the negative impact of the crisis on growth,” commented the World Bank in a regional report earlier this year.
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Belgrade adopted a supplementary budget for 2021 in April, in which it increased capital expenditure and extended policy support to households and companies.
“Expansionary fiscal policy is continuing as the government has adopted additional fiscal stimulus measures to the tune of 4.5% of GDP (€2.0bn) for 2021, consisting of increased expenditures in healthcare, wage subsidies and one-off payments to pensioners and some adults. The budget for 2021 also includes a significant increase in public investment,” according to the EBRD.
The IMF has urged Serbia to rebuild policy buffers once the recovery gains momentum. Spending isn’t expected to be reined in until well into 2022, however, as Serbia will hold both general and presidential elections in the spring.
Unemployment
The World Bank calculates that in 2020 around 69,900 jobs were lost in the Western Balkans; 144,000 jobs disappeared during the initial strict lockdowns in Q2 2020 – most of them in tourism, and concentrated in Albania and Montenegro – but almost half were later recovered. Other sectors with heavy (temporary) job losses were construction, manufacturing, trade and transport.
Serbia escaped lightly, thanks to the economic stimulus
from the government and – after the initial lockdown – less stringent pandemic restrictions, as well as the structure of
its economy. Unemployment reached a record low of 9% in 2020, although youth unemployment had risen to 32.4% by the end of the year. Despite the low unemployment figures, however, the World Bank points out to a rise in inactivity, with some unemployed people temporarily giving up their job searches, while others retired or moved abroad to work. Now, as the initial impact of the 2020 stimulus programmes wanes, unemployment is creeping back up.
Serbia ILO unemployment
Source: Serbia state statistics agency
On the other hand, according to the World Bank the ICT industry weathered the crisis well and became an important employer in Serbia, while public sector employment grew. This had the effect of "cushioning the pandemic’s impact but increasing the size of the already relatively large public sector in the Western Balkans.”