The World Bank (WB) has lowered the projections of the economic growth for Serbia in 2023 to 2%, but we have kept the projections for the next several years and we expect the growth to be between 3 and 4% between 2024 and 2026, stated the Senior Country Economist at the WB Country Office for Serbia, Lazar Sestovic.
– The inflation should be lowered to 8% by the end of the year and then return within the target band of the National Bank of Serbia (NBS) in the second quarter of the year or by mid-2024 – he said at the presentation of the WB Regular Economic Report for the Western Balkans.
He added that the inflation had started dropping, but that the peak value had been realized in Serbia a little later than in other countries of the region.
– We expect these trends to follow the trend from the neighboring countries, including the countries of Central and Eastern Europe, so at some point in mid-2024, we expect the inflation to return within the target band set by the NBS – Sestovic said and warned that the real effective exchange rate was depreciating and that it should be monitored, as it could have an impact on Serbia’s exports.
As he said, this year’s budget results are quite good.
– The public revenues were better than expected, whereas the state has managed to reduce the public expenditures and, accordingly, there is a small surplus at the beginning of the year, whereas the public debt has gradually lowered – he said.
As he pointed out, another positive parameter, similar to those in other countries of the region, has been the current account deficit, which is considerably lowered, more than was expected in the summer.
– We expect the current account deficit in 2023 to be around 2.5% of the GDP, which is entirely financed through strong foreign direct investments (FDI) and that is a trend we expect to continue in the future – Sestovic pointed out.
According to him, the fiscal deficit will probably be lower than what the state adopted by the budget revision, so by the end of the year, it will be 2.5% of the GDP instead of the announced 2.8%.
He also reminded that, in the long term, the Government of Serbia was oriented toward following the fiscal rule and stabilizing the deficit at around 1.5% of the GDP.
– We believe that it is realistic. That result could probably be better, that is, the deficit could be even lower. The consequence is that the total public debt should be lowered and its participation in the GDP should be reduced from around 56% at the moment to around 51% of the GDP in the next two to three years – explained the WB representative and added that the current account deficit should return to around 4% of the GDP.
He also expects the foreign direct investment inflow to remain high, “so those flows, which don’t generate debts, will fully finance the current account deficit.”
– According to our expectations, the external debt will continue lowering to around 6% of the GDP – he said.
Sestovic pointed out that the risk to the projected growth being achieved lay primarily in external demand, that is, the situation in the states that are Serbia’s key trade partners – the EU and the Western Balkans.
– If those two regions slow down, the demand for our exports and FDI inflows will be reduced, which means that the growth projection will need to be revised down – he said.
As he added, another risk to the growth projection pertains to the results of the public enterprises.
– The past years have shown what a crisis in big public enterprises which deal with energy means. It requires enormous fiscal support, fiscal guarantees, recapitalization and all other kinds of state help and then there are less funds for other needs and the economy slows down – Sestovic concluded.