We expected a milder recession in Serbia than in Central and Eastern Europe due to the latter region's higher economic integration with strongly hit Western Europe. We intend to revise the forecasts by end-September as more data is going to be available
The EBRD is one of the largest institutional investors in the Western Balkans. Up to now, it's invested over EUR13 billion in more than 700 projects, including in key infrastructure, the SME segments and also the green economy. In September issue of Diplomacy&Commerce magazine, we spoke with EBRD Regional Director, Head of Western Balkans and Serbia Office, Mrs. Zsuzsanna Hargitai. “EBRD's policy activities and technical assistance targets improvements in many from the aforementioned areas: helping fight informality through enhanced business inspections, making public procurements more efficient, strengthening corporate governance of state-owned enterprises, supporting the institutional capacities from the competition authority and disseminating best practices of the Serbian business registry within the Western Balkans”, stated Mrs. Hargitai.
The degree of capital investments in Serbia continues to be assessed as insufficient, although there has been an increase when compared with previous years. Just how can the economical environment in Serbia be improved?
Indeed, investments in Serbia in percentage of GDP have been low compared to countries at similar or somewhat higher level of development. Gross fixed capital formation (investments and change in inventories) were below 20 percent of GDP between 2009 and 2023 while in the more developed Central European and Baltic countries with higher income levels it was above 20 percent of GDP. Some Western Balkans countries also have kept investments higher (e.g. Albania or North Macedonia at above 25 % of GDP). This might have led to faster average annual GDP development in these countries (Central European and Baltic countries 2.9 percent, Albania 2.7, North Macedonia 2.5) compared to Serbia (1.7 percent) in 2010-2023.
Investments in Serbia by now have reached an amount above 20 percent of GDP but they're still lower than that of fast growing countries. The federal government may influence investments through several measures: directly through raising public investment, indirectly through improving the investment/business environment. Both are essential in Serbia.
More and better quality public investment is important to be able to close still large infrastructure gaps and accelerate growth. According to the Fiscal Council, a yearly increase of public investment by half percent of GDP between 2023 and 2023 (from 3 percent to 4.5 percent of GDP) can raise growth by half percentage point annually. While public financing needs will significantly increase this season due to the epidemic, the expected economic rebound from 2023 will hopefully raise the fiscal space for public investments.
Other desired improvements in the industry environment should are designed for improving public and company governance, enhancing the professional capacities of the public administration and strengthening independent institutions that ensure level arena and transparency for competitors on the market. Reforms to increase the project implementation capacity of the public sector will also be key to increase public investments as large public projects have been lagging.
One-stop shop electronic procedures should become more prevalent so that public administration gets to be more user-friendly. The performance of private companies could be significantly strengthened by receiving higher quality inputs from more efficiently operating state-owned enterprises.
The judicial system requires further improvements to really make it work faster as well as in a far more predictable way. Foreign exchange regulations can as well be enhanced as in their present state they hinder more sophisticated investors and prevent them to choose Serbia as their regional financial and operational centre.
EBRD's policy activities and technical assistance targets improvements in lots of of the aforementioned areas: helping fight informality through enhanced business inspections, making public procurements more efficient, strengthening corporate governance of state-owned enterprises, supporting the institutional capacities from the competition authority and disseminating best practices from the Serbian business registry in the Western Balkans. We place a strong emphasis on helping business environment reforms by building strong institutions and upgrading institutional capacities.
The Serbian government's forecast for GDP growth for 2023 is sort of more optimistic than the IMF's estimate. What are the new forecasts concerning the Serbian and Western Balkan economies?
EBRD's GDP forecast at -3.5 per cent for 2023 and 6 percent for 2023 is comparable to that of the IMF (-3 percent for 2023 and 6 percent for 2023). Economic data available thus far are broadly in line with our projections. We expected a milder recession in Serbia than in Central and Eastern Europe because of the latter region's higher economic integration with strongly hit Western Europe. We plan to revise the forecasts by end-September weight loss data will be available.
The Council of the EU has reached an agreement on a seven-year budget, covering the period by 2027, including a contract on a mechanism worth 750 billion euro to become spent on the recovery in the consequences of the coronavirus pandemic. What is your look at the adopted budget?
The EBRD welcomes the agreement and remains a committed partner of Team Europe supporting efforts and initiatives to deal with the economic impact of the coronavirus pandemic. This agreement is extremely relevant for that EBRD, not only because the EU is a vital shareholder, partner and donor, but also because it permits us to build on synergies between your Bank's strategic directions including our transition mandate, and the priorities recognized by the EU. Perhaps the best shown example is when the Bank's Green Economy Transition approach chimes well using the European Green Deal and Just Transition Mechanism – priorities that are extremely relevant for the recovery phase in our countries of operation.
The COVID-19 pandemic has prompted countries to consider more about their immediate environment. How do you think the crisis will modify the future distribution of production by world regions?
It is simply too early to inform. You will find expectations that areas of long supply chains might be “near-shored”, i.e. relocated nearer to the makers in Western Europe and Western Balkans countries might take advantage of this. It's not sure that this will occur because the location of these supply chain elements reflect existing competitive advantages. Nevertheless, Serbia might be in a good position to attract potential investors given its strong manufacturing heritage.
It is much more and more important, however, that the country focuses on the overall quality of the business environment for those (domestic and foreign) investors and less on low wages and subsidies provided for (mostly foreign) investors.
Ready to support Serbia
EBRD also has been and it is ready to support Serbia with public investments both at the central and also the local level. As a response to the epidemic, we've increased our infrastructure financing inside the Vital Infrastructure Support Programme. Our on-going projects include financing from the roll-out of rural broadband, the bus purchases and working capital needs of the Novi Sad trains and buses company and energy efficiency improvements in a number of cities.
