Serbia has passed through a period of dramatic change during the previous fifteen years. The impact of the international financial crisis and numerous rounds of elections have slowed down  necessary structural reforms in the country. However, more recent trends point to a move toward greater fiscal responsibility and a reengagement on critical issues such as state owned enterprise reform, financial sector reform, and public sector efficiency. In January 2014, Serbia started membership talks with the European Union (EU) after making significant progress in negotiations with Pristina, Kosovo. The authorities have also made tough political decisions, including the arrest and extradition of the last of the country’s indicted war criminals that remained at-large.

Serbia has pursued these reforms while struggling to recover from the impact of the international financial crisis - which led to a 50% spike in poverty and a similar jump in unemployment in the country. As in many countries, the challenge in Serbia is translating a tenuous economic recovery into jobs and poverty reduction in a tight fiscal environment. As a result, Serbia needs to become more competitive and increase productivity in the country.

As detailed in the 2012 Country Economic Memorandum (CEM), reform in the country will require attracting and adopting new technologies, which, in turn, depend on a the existence of a supportive business environment, capable institutions, a skilled labor force, and high-quality infrastructure.

Growth in Serbia for 2013 is estimated at 2.5%, but is expected to decline to just 1% in 2014, reflecting the impact of fiscal tightening, lower inflow of investments, and the ongoing fragile situation in the domestic and international financial sectors. More robust growth rates of around 2-3% are forecasted over the medium term.

Serbia’s per-capita Gross Domestic Product (GDP) was approximately $6,134 in 2013. The poverty rate stood at 9.2% in 2010, up from a low of 6.1% in 2008. Growing unemployment led to a record high unemployment rate of 24% in October 2011, which eventually ebbed to around 20% at the end of 2013.

Serbia’s main exports are cars and other products from the automotive sector. Automotive exports have become the most important sector following significant investments from Italian carmaker FIAT. Almost 90% of all Serbian exports go to Europe—55% to the EU and about 33% to the Central European Free Trade Agreement (CEFTA) region. Exports of services are also gaining in importance, reaching 10% of GDP in 2013.

Going forward, Serbia’s main challenge is to improve living standards in the country and transform economic recovery into jobs in a tight fiscal environment. Increasing exports, productivity, and competitiveness are recommended actions that can help propel the country’s economic growth.

The World Bank Group’s programs in Serbia are designed to advance the European Union (EU) agenda of Smart Growth - with a focus on education, skills, and innovation - as well as Inclusive Growth - especially emphasizing job creation for vulnerable groups and modernizing labor markets and welfare systems.

Serbia’s Country Partnership Strategy (CPS) FY 2012-2015 was approved by the World Bank in December 2011. The CPS supports Serbia’s EU accession aspirations and helps the government strengthen competitiveness while improving the efficiency and outcomes of social spending in the context of severely constrained budgets. The focus is on:

  • Competitiveness: Development policy loans (DPL) from the International Bank for Reconstruction and Development (IBRD) focuses on the reform of public enterprises, investments in road rehabilitation, reform of the judiciary, and a new partnership with the European Commission (EC) on innovation. These build on the current portfolio of road transportation, cadastre, and irrigation projects. The International Finance Corporation’s (IFC) activities support the investment climate, strengthen domestic financial markets, and facilitate private sector participation in infrastructure. The IFC also facilitate private sector involvement with fresh capital and know-how to improve productivity, energy efficiency and a focus on environment in the corporate sector.
  • Improved Efficiency and Outcomes of Social Spending: Assistance in the next two years will come from proposed reforms in non-private enterprises and the public sector, which will help reduce Serbia’s large public sector while simultaneously strengthening private sector and cushioning the impact of these structural changes. The current portfolio in health has been strengthened by the addition of a new health project approved in February 2014. The EC has asked the Bank to support Serbia in strengthening its capacity to monitor and evaluate social spending. This is increasingly important in light of Serbia’s aging population and its commitment to reducing budget deficits.

In March 2014, the portfolio consisted of three active investment projects for a total of $508.9 million, three new projects that have been approved but are pending effectiveness (totaling $340 million) and eight trust funds in the amount of $24.12 million. An additional $500 million is  available for budget support and results-based lending in 2014-2015, should the need arise. Serbia has requested $800 million for the entire lending period.

The IFC expects to provide financing of $600-800 million to the private sector during the CPS period. The program will depend on Government support for private sector participation in the infrastructure sector at the national and municipality levels, further improvements of the business environment, and the growth outlook in Europe.

The World Bank began supporting Serbia in 2001 as part of the Federal Republic of Yugoslavia, and since 2006 as an independent country. From 2001 to date, the World Bank has financed 39 projects with almost $2 billion.

The Bank’s knowledge and financial support has played a critical role in reforming Serbia’s banking, education, energy, public finance and social sectors. It was instrumental in the privatization of a number of state and socially owned companies. It also assisted in the modernization of border crossings, reform of the judiciary, road rehabilitation, improving environment, health and employment services, and helped Serbia develop a more effective business environment.

The World Bank is supporting Serbia in its progress toward full European integration and the promotion of dynamic economic growth through the accelerated implementation of economic reforms, increasing employment and living standards, and balanced regional development.

The Bank’s current portfolio consists of three active investment loans with a total  commitment value of $508.9 million. Highlights of the Bank’s portfolio include:

Corridor X Highway Project
Serbia’s geographic position puts it at the crossroads of the two important Pan-European transport infrastructure networks. One is connecting Budapest with the Bulgarian capital Sofia; the other links Greece to the north. This network is known as Corridor X, and currently not all sections in Serbia are of Motorway Standard. To improve this corridor, the Government asked the World Bank to act as a lead partner and make a contribution of $388 million, the largest ever World Bank loan to Serbia.

Serbia Health Additional Financing Project
Improving efficiency remains the main challenge facing Serbia's health sector. As in other European countries, changing the way healthcare providers are paid is crucial. A $13.5 million loan from the World Bank has allowed communications and technology equipment to be updated in 20 hospitals around Serbia. Moving to a Diagnosis Related Groups (DRG) system has enabled more efficient financing of public health care providers, and ensures quality and access to public health care services. The Ministry of Health, Health Insurance Fund and other key national partners have initiated the implementation of reforms to move toward payment systems that reward productivity and quality, ultimately leading to more efficient public spending.

In February 2014 the Board of World Bank Directors approved a new loan of $40 million for the Second Serbia Health Project,aimed at supporting the improvement of health care financing and efficient purchasing of pharmaceuticals and medical products

Reports from Serbian hospitals are promising, showing that a reduced number of hospital beds achieve higher occupancy rates and a shorter average length of stay.

Deposit Insurance Strengthening Project

The Deposit Insurance Strengthening Project aims to strengthen the financial and institutional capacity of the Deposit Insurance Agency (DIA), to ensure that the Deposit Insurance Fund has the resources to meet its legally mandated deposit insurance and bank resolution functions. The Deposit Insurance Fund covers depositors in Serbia of up to 50,000 Euros in the case of a bank failure. The depletion of the Deposit Insurance Fund due to several recent bank failures has created risks to the Serbian financial system - due to the possibility of it not having adequate resources to cover insured depositors.

Ensuring confidence and continuing to develop the financial sector in Serbia is a critical part of the agenda of ensuring shared prosperity in Serbia. Access to credit remains a major issue in Serbia, as credit growth continues to be much lower now than prior to the 2008 global financial crisis. Research has shown that increasing confidence in a financial system can lead to an increase in the amount of domestic savings that can be mobilized for more productive uses, which, in turn, can lead to increased growth and job creation.

Significant support is also provided to strengthen the institutional and technical capacity of the Deposit Insurance Agency.


Serbia: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments