EBRD Transition Report asks for more reforms in Serbia

Despite substantial fiscal adjustments, significant fiscal risks from large SOEs remain

Source: EBRD

* Challenges but also benefits ahead, says latest EBRD Transition Report * Serbia should advance public sector reforms, privatisation and SOE restructuring, report says * Better access to finance for SMEs and transparent rules are key for progress

The countries where the EBRD invests face challenges but they continue with much-needed reforms, says the Bank says in its latest Transition Report 2018/19 which was presented by its Chief Economist Sergei Guriev in Belgrade today.

“While progress in the area of structural reform has been modest, positive developments outweigh negative ones in most of the economies where the EBRD invests”, the report says.

The presentation at the National Bank of Serbia was attended by representatives of the government, businesses and academia.

“While the transformation of work will pose major challenges for policymakers, our overall message is optimistic,” Guriev added. “Changing work patterns can result in tangible aggregate benefits. Moreover, a fair distribution of those benefits is eminently feasible. The future of work will itself entail plenty of work, but that future can and should be a bright one.”

Highlights and key priorities for Serbia

After growth of only 2 per cent in 2017, economic expansion in Serbia rose to over 4 per cent in 2018. This increase was fuelled by a recovery of domestic demand, while high export growth was offset by the continued strong growth of imports. In 2019, the EBRD expects growth to slow down to 3.5 per cent, largely based on domestic consumption and investment, with offsetting effects from higher imports.

Fiscally, Serbia has achieved a substantial adjustment over the past few years supported by IMF arrangements.

The country started to record fiscal surpluses after years of deficits, and public debt is today on a declining path. However, significant contingent fiscal risks stemming from large, unreformed state-owned enterprises (SOEs) remain, while reforms in the public and tax administration are only slowly progressing.

The Transition Report also discusses that further progress requires improvements in the business environment. Small and medium-sized enterprises (SMEs) need better access to finance and transparent rules and regulations which are applied equally. Businesses would benefit greatly from the development of non-bank financial institutions and improved tax-related practices, including simplified tax procedures, lower para-fiscal charges and better predictability of tax decisions and services.

In addition, further efforts are needed to support market transactions in non-performing loans (NPLs). Efforts should focus on easing access to information for potential investors in NPL portfolios, improving out-of-court restructuring and making the judicial process more efficient.

Future of work, migration

The Transition Report also examines migration, which is a concern for many EBRD countries, including Serbia. International migration rates in the Bank’s regions have been rising since 1990 and have consistently been higher than the global average.

The report finds that improving the business environment and the quality of public services may significantly reduce people’s wish to emigrate. “Improving the quality of public goods can have a large impact on intentions to emigrate, comparable to the effect of raising wages by more than US$ 500 a month in a country such as Albania.”

However, it also notes the positive aspects of emigration. While in the short term emigration reduces the productivity of firms in the country of origin, in the long term it boosts the transfer of knowledge and supports innovation. Partly as a result of this, new EU member states from the EBRD region are narrowing the gap with advanced economies in terms of the quality and numbers of patents.

The report describes the experiences of refugees who fled former Yugoslavia during the 1990s. After the war, many of the 500,000 people who had lived and worked in Germany returned home. Data suggest that this led to a significant increase in exports from former Yugoslav economies. Strikingly, the highest rates of export growth were seen in sectors where the former refugees had tended to work while in Germany.


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