Abstract
The global financial crisis unmasked Serbia’s unsustainable pre-crisis growth model. Looking back, the Stand-By Arrangement (SBA) provided effective insurance against a financial meltdown, initiated the needed re-balancing of the economy, but could not prevent large job losses. Looking ahead, the transition to a more sustainable growth model remains incomplete and fragile. The export-led recovery is expected to continue picking up steam, but labor market conditions will remain difficult. The current account deficit is expected to remain relatively high, requiring significant capital inflows to maintain external balance.
This statement provides information that has become available since the issuance of the staff report (EBS/11/47). The new information does not alter the thrust of the staff appraisal.
1. Standard & Poor’s upgraded Serbia’s rating on long term sovereign local and foreign currency debt from BB- to BB. The upgrade was justified by Serbia’s improving economic policy implementation, and its new momentum regarding fiscal consolidation, structural reform, and economic rebalancing. The upgrade also points to political consensus supportive of EU integration, but cautions that a downgrade could be in the offing if major political maneuvering before or after the upcoming parliamentary elections causes backtracking from fiscal targets.
2. A broad political consensus has emerged that the upcoming parliamentary elections should only be held after the EU’s decision on Serbia’s EU candidate status. The EU is expected to decide on Serbia’s EU candidate status during the last quarter of 2011.
3. The Serbian government introduced a three-month ban on wheat exports (subsequently modified to allow for a quota for flour exports). The decision reflected concerns about rising bread prices in the domestic market. Serbia’s decision follows similar measures taken by other countries in the region, and is likely to add to scarcity in the international wheat market and reduce incentives for producers to expand production
4. There was only one bid for the acquisition of the 51 percent of Telekom and the offer was below the government’s minimum price. In line with tender procedures, the government has given Telekom Austria a 15-day period to improve its bid.
5. Parliament has taken several important actions. These include: i) adoption of a new social welfare law to allow expanded coverage of social programs; ii) the appointment of the fiscal council envisaged under the new fiscal responsibility law; and iii) the modification of the construction law, aiming at simplifying the issuance of construction permits and clarifying property rights.