Governor Jorgovanka Tabaković for Biznis.rs portal about why Serbia ranks among the countries with the best result in IMF projections

  • What has singled out Serbia is the question that both we and the IMF team receive. There are plenty of reasons. First of all, we did an excellent job before the crisis. In the course of eight years, we carried out complete economic transformation of the country, as seen in low and stable inflation, which stands at around 2% on average, a relatively stable exchange rate of the dinar which is the alpha and omega of overall macroeconomic stability, successful fiscal consolidation, the opening of factories, a sharp rise in employment, robust export growth, with growth rates of over 4% (4.5% in 2018 and 4.2% in 2019, with a strong contribution of domestic and foreign investment). Moreover, we have strengthened our financial sector in the past eight years so that it provides proper and full support to the real sector as only together can they last, i.e. one cannot function without the other. By doing so, we enabled Serbia to record vibrant and sustainable growth on much stronger foundations, as well as to face various types of shocks, with the pandemic being a shock without precedent.
  • An equally important reason is the comprehensive and timely package of measures, which is something that also makes Serbia stand out in the international context. Owing to everything we have done to strengthen our economy, we were able to adopt a robust and comprehensive package of economic measures worth close to 13% of GDP. We adopted it in the shortest possible time. The comprehensiveness and timeliness of measures were crucial for preventing a collapse in business and consumer confidence, and thus a spillover of negative effects of the pandemic on the labour market and production capacities. During the crisis, the NBS was “the first-instance haven” since we adopted numerous measures almost on a monthly basis, and supported citizens, businesses and the government to more easily overcome the crisis finance-wise at the moments when they needed this support the most. We thereby preserved the necessary liquidity of all sectors and solid access to the financial sources, and ensured even more favourable financing conditions. Where are we now? In many areas of the economy, Serbia has already reached or exceeded the pre-crisis level – in the industry, goods export, retail trade, and employment numbers. At the level of the entire 2020, the average net wage was raised by 9.4% y-o-y. In February this year, total formal employment increased by 59,000 persons compared to February last year. The growth was driven by a rise in private sector employment by 58,000 persons.
  • The third reason is the strategic diversification of investors and markets, about which I have often spoken. This crisis has hit all economies without exception and has thus reduced demand for products from other countries. We have worked systemically on increasing the diversification of our industrial production, including exports, both in terms of production and the markets to which we export. As a result, only a smaller part of our industry was affected by the pandemic and we preserved our presence in other markets as well. I wish to substantiate this argument with the data that during the pandemic year we experienced a rise in exports to countries outside the euro area, such as the countries of central Europe, China, the USA… The strategic diversification is important from the aspect of investment as well. The major part of FDIs to Serbia is channelled to the industry, other export-oriented sectors and the construction of infrastructure, which encourages the necessary diversification of investment by branches and groups of products. The best example is the car industry, where Serbia has the most diverse range of products produced in this area – from tires, batteries, conductors, to the most sophisticated products such as microchips and electric motors. On these grounds, we raised the export of car parts four times since 2012 – from around EUR 500 mn to EUR 2 bn. We are also establishing state-of-the-art science and technology parks, so far in four towns where our young generations will remain. Today we have a wide range of all kinds of products – from cables and parts for the car industry, through railway vehicles to the most modern science and technology parks – all in a single place, and this is what makes the difference. For Serbia, this means further growth in employment, wages, exports and the overall economy. This is at the same time the integral part of the answer as to how and why Serbia.
  • Equally important – even during the pandemic, we continued implementing our infrastructural projects in Serbia. They were not jeopardised by the adopted programme of measures – to the contrary. The share of government capital investment in GDP rose to 5.4% in 2020 from 4.9% in 2019. And this is a recommendation usually given to countries in normal conditions – increase your capital investment. This is what we were doing in Serbia even during the pandemic, and will continue doing so this year – the share of government capital investment will exceed 6% of GDP. While policy makers were receiving the economic policy recommendations from senior representatives of international financial institutions who advised us to “spend, spend, spend, but keep the bills”, we in Serbia continued to behave responsibly. Yes, we did ensure a robust package of measures, but we knew we had to preserve the share of public debt in GDP at the level not exceeding 60%, which is what we did.
  • We also knew we had to preserve gross FX reserves as they serve as an important pillar of the country’s financial security. We have preserved and further reinforced them even in the crisis year of 2020 (by EUR 113.2 mn). As their growth continued into this year (by EUR 783.9 mn), they reached EUR 14.3 bn at end-March. This means we continued to behave responsibly because we know we must live even once the pandemic ends. By preserving production capacities and the labour market, including the FDI inflow of EUR 3.0 bn last year (EUR 10.3 bn in the past three years), we have preserved the outlook of economic growth, which we estimate to move from 5% to 6% this year.
  • On top of all this, Serbia stands out in terms of the success of its vaccination process, which is the result of strategic decisions and the strong wish to preserve the health of our people.
  • The results confirm that our plans were not unrealistic, but that we did set our objectives high – we aimed to remain attractive for investment, which means new jobs and wages. All the while, Serbia has been working on the development of its IT sector, but has never underestimated its agricultural production nor should it ever underestimate it. This is also a type of diversification which testifies to the encouragement of our specificities, i.e. our comparative advantages – to use an expert term. Measured by the growth achieved in past period, the ICT sector recorded an excellent result – the ICT services exports almost quadrupled in eight years – from below EUR 400 mn in 2012 to over EUR 1.4 bn in 2019. The ICT sector was one of the sectors witnessing a rise in exports even in 2020, but it is not the only one. Serbia was also strategically developing its agricultural capacities. And what is the result? Our agricultural exports have almost doubled since 2012 – from around EUR 750 mn to almost EUR 1.3 bn in 2020. Agriculture is the component that made the necessary difference and supported GDP growth, satisfying the needs of our citizens, including partly foreign citizens, through exports which increased even in the crisis year. A new development chance has also been recognised in domestic tourism, which can help us develop our villages. We did not wait for the crisis to recognise this potential. In the years before the pandemic, domestic tourism developed at a fast pace, among other things, through the programme of vouchers launched by the government several years ago. We thus develop people’s habits to spend a part of their holidays, if not their entire holidays, in their own country. During the summer months of 2020, domestic tourism compensated for the large portion of absence of foreign tourists, and we enjoyed the beauties of our country.

All this is a part of the answer as to how and why Serbia. Owing to all this, Serbia is among the group of countries whose credit rating was either affirmed or raised during the pandemic, which is indeed a rarity. Growth can bring progress only if it is sustainable and placed on sound foundations. This is true for every tree and every plant – as well as for every system.

Governor’s Office