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Economic Policy Dialogue: EU commends Serbia for its economic growth and outlines outstanding challenges in the area of structural reforms and competitiveness
23/05/2017

Representatives of the EU Member States, the Western Balkans and Turkey, the European Commission and the European Central Bank, as well as representatives of the central banks of the Western Balkans and Turkey met today for their annual economic policy dialogue in Brussels. Serbia was represented by the Minister of Finance Dušan Vujović and the Governor of the National bank of Serbia Jorgovanka Tabaković. The meeting is part of the strengthened dialogue on economic governance between the EU and Western Balkans and Turkey to better reflect the European Semester process* at EU level.

The representatives concluded the meeting with a set of country-specific targeted policy guidance to support efforts towards fulfilling the Copenhagen economic criteria, focusing in particular on measures to improve macro-fiscal stability and competitiveness. The conclusions for Serbia very positively assess the economic growth in 2016 and the strong fiscal consolidation that the country implemented in the past year. In addition, financial stability, especially with a decline in non-performing loans, is preserved. However, structural obstacles to growth and competitiveness remain a challenge, including reducing the role of the state in the economy.

Six Serbia-specific policy recommendations were agreed upon. They focus on: (1) the need to continue reducing the budget deficit in 2017 and over the medium term. In this context, (2) reforms of the state-owned enterprises, including the announced restructuring of Srbijagas and implementing the EPS optimisation plan, and reinvigorating the reform of the tax administration were stressed. (3) The remaining measures of the strategy for resolution of non-performing loans should be implemented; efforts aimed at promoting the use of the Dinar should continue; the reform and privatisation of the two large state-owned banks should be finalised and a solution found for the remaining small state-owned banks. (4) Serbia also needs to increase the efficiency of the energy sector, notably by gradually adjusting electricity tariffs to reflect actual costs and by improving payment collection of energy bills, and to (5) improve the business environment by better regulating parafiscal charges and inspections and facilitating access to finance. (6) Reducing non-wage labour costs, targeting active labour market measures to vulnerable groups and introducing dual learning in education are also identified as measures needed to boost private sector development.

Commenting the results of the Dialogue, Minister Vujović, said: "The Joint Conclusions recognise the progress Serbia has achieved in implementing economic reforms and improving economic governance in general. The economic recovery which started in 2015, was further accelerated in 2016 resulting in a GDP growth rate of 2.8%. Improvements in twin deficits (fiscal and external) and low inflation made 2016 the most successful year for the Serbian economy since the global financial crises. Our goal is to maintain strong macroeconomic stability and to persist with the implementation of pending structural reforms, especially those regarding state owned enterprises and non-performing loans, to achieve sustainable medium term growth. In that context, the Economic Reform Program helps us prioritise the use of public resources and further the quality of economic governance to increase competitiveness and remove barriers to growth, while observing sound fiscal rules and anchoring consolidation efforts achieved thus far."

On the occasion, Governor Tabakovic said: "As acknowledged by the ECB and EC, Serbia made significant progress in 2016 in macroeconomic stabilisation and the reduction of internal and external vulnerabilities. We preserved the price stability in Serbia and made the decision to lower the inflation target from 4% to 3%+/- 1,5 pp. The key policy rate was lowered further in 2016, to its lowest level, while insuring full coordination between monetary and fiscal policy measures. We preserved stability at the foreign exchange market, supported also by reduced imbalances and strengthened export performance of our economy. Dinarisation will remain one of our priorities and we are already seeing that more than 70% of new loans to households were in dinars, with the EBRD issued the first three-year Dinar bond. Regarding non-performing loans resolution, we agree with the assessment given that - the non-performing loan resolution made considerable progress during 2016, which confirms that non-performing loan Strategy in Serbia identified and tackled the right impediments. Owing to the results, Moody's upgraded Serbia's credit rating, while Serbia's risk premium reached its ten-year low during the last few months. A lot has been done, and also work remains ahead of us."

Oskar Benedikt, Acting Head of the Delegation of the European Union to Serbia stressed: "The conclusions clearly recognise the important steps forward that Serbia made in achieving economic growth and macro-fiscal stability. Serbia needs to continue reforms in an ambitious way, particularly when tackling structural reforms, and creating a better business environment that will in turn increase growth and create new jobs".

* The European Semester provides a framework for the coordination of economic policies across the European Union. It allows EU countries to discuss their economic and budget plans and monitor progress at specific times throughout the year. More at https://ec.europa.eu/info/strategy/european-semester_en
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Ministry of Finance Republic of Serbia
Kneza Milosa Street 20, 11000 Београд