Overview

  • Country Context

    Serbia2018
    Population, million7.0
    GDP, current US$ billion50.5
    GDP per capita, current US$7,220
    School Enrollment, primary (% gross, 2016)100.6
    Life Expectancy at Birth, years (2016)75.7

    The global financial crisis exposed the structural weaknesses in Serbia’s economic growth model and prompted the need for fiscal consolidation and an acceleration of the unfinished transition to a market economy. Serbia’s rapid growth in 2001–08 was driven mainly by domestic consumption and led to significant internal and external imbalances that proved to be unsustainable. 

    The Government that formed after the April 2016 elections stepped up the implementation of structural reforms, broadening the focus to include social sector transformation. Although the results of the spring 2017 presidential election led to a change in prime minister (as the incumbent became Serbia’s new president), the Government experienced only minor changes, enabling it to maintain an emphasis on reforming state administration, public finances, and the economy, along with pursuing the European Union (EU) accession process.  

    The Government’s current economic reform program focuses on ensuring economic and financial stability, reducing debt, and creating an environment for economic recovery and growth to foster employment and raise living standards. However, recent indications suggest that the Government is wavering on reforms.

    Last Updated: Oct 25, 2019

  • Strategy

    Number of Active Projects13
    IBRD LendingUS$1.09 billion
    EU Trust Funds3 (€7.9 million)

    The overarching goal of the World Bank Group’s (WBG) Country Partnership Framework for 2016–20 is to support Serbia in creating a competitive and inclusive economy and through this, to achieve integration into the EU. The strategy is based on available evidence and expertise and focused on achieving the goals of reducing poverty and increasing prosperity across Serbian society in a sustainable manner.

    Key areas of WBG support in Serbia include: 

    • restoring fiscal and macroeconomic stability
    • creating conditions for accelerated private sector growth and job creation
    • improving infrastructure
    • strengthening public sector management and improving public service delivery to citizens
    These focus areas emerged from six fundamental priorities identified by a comprehensive systematic diagnostic analysis that examined the key challenges constraining growth and greater shared prosperity.
     
    The active portfolio reflects these priorities through 13 projects in the areas of transport, real estate management/business environment, competitiveness and jobs, health, flood recovery and flood protection, disaster risk management, financial sector reform, public sector modernization (including the digitalization of selected public services and the modernization of tax administration), and early childhood education. 
     
    Key Engagement
     

    The WBG has engaged in a multi-faceted effort to address Serbia’s complex legacy reforms, including reform of commercial state-owned enterprises, financial consolidation in public utilities and public transport companies, and more efficient and competent core public administration.

    More than four years of intensive dialogue and technical advice, combined with policy-based and results-based lending, have started to yield important and increasingly impressive results.  

    Key operations have included the Public Enterprise and Public Utilities Development Policy Lending (DPL) series, the Competitiveness and Jobs Project, the Program for Results in support of Public Administration Modernization and Optimization, the State-Owned Financial Institutions Reform Project, and the Program for Results in support of Enhancing Infrastructure Efficiency and Sustainability. In FY19, two new operations were added: the Tax Administration Modernization Project and the Enabling Digital Governance Project. 

    As a result of these efforts, among other outcomes, public utilities are returning to financial health with gradually improving services, and local scientists are linking with enterprises to commercialize their innovations, thus contributing to growth and jobs.  

    Next generation reforms are focusing on developing a new growth agenda and deepening public sector reforms to promote economic initiative, entrepreneurship, innovation, and the digital economy. 

    Last Updated: Oct 25, 2019

  • Recent Economic Developments

    Based on the latest estimates, year-on-year (y-o-y) growth in the first and second quarter of 2019 reached 2.7 and 2.9 percent, respectively. Given this performance, the growth projection for 2019 has been revised downward from 3.5 to 3.3 percent. As in the past, strong consumption and investment are not sufficient to compensate for an increasingly negative contribution of net exports to growth, with growing consumption (both public and private) to a large extent matched by increased imports.

    Looking at sectors, industrial output fell by 2 percent in the first half of 2019, including a 2.8 percent decrease in manufacturing. Agriculture output is projected to decline or stagnate.

    Growth has contributed to labor market improvements. The second quarter activity and employment rates among the population aged 15 and above continued to increase in 2019, reaching 54.8 and 49.1 percent, respectively. The employment rate remains lower among female workers and youth. Unemployment declined to an estimated 10.3 percent in the second quarter of 2019, and the unemployment rate for the population aged 15–64 stood at 10.8 percent. In the first half of 2019, average wages increased by 9.9 percent in nominal terms (7.2 percent in real terms).

    The private/public sector wage gap has narrowed, with private sector wages growing by 10.7 percent compared to 9.5 percent in the public sector. Thanks to these trends, combined with higher pensions, poverty (living on income under US$5.5/day in 2011 purchasing power parity [PPP] terms, the standardized middle-income-country poverty line) is estimated to have declined from 23.8 percent in 2014 to 19.8 percent in 2019.

    The consolidated general government budget showed a surplus of 0.3 percent of GDP in the first half of 2019. Revenues increased by 7.6 percent in nominal terms compared to the same period in 2018. Budgetary spending rose by 9.6 percent in nominal terms, corresponding to 1.7 percent of annual GDP. 

    Inflation is on a declining path, after reaching a peak in April of 3.1 percent (y-o-y). External imbalances widened as evidenced by an increase in the current account deficit (CAD) by 51 percent in the first half of the year, now projected at 6.7 percent of GDP for 2019. Inflows of foreign direct investment remain strong—they were up 28 percent in the first half of the year. Total external debt continued to decline as a share of GDP to 62.5 percent at end-March 2019; public debt declined to 54 percent of GDP by end-June.

    Economic Outlook

    The economy is expected to continue to grow at around 3–4 percent over the medium term. Investment and consumption will be the main drivers of growth. Consumption will increase as wages and employment are expected to continue to grow, pushing up imports and widening the CAD. 

    Medium-term growth projections crucially depend on the pace of structural reforms and political developments. 

    The acceleration of the EU accession process is important not only from the point of view of strengthening institutions but also as a signaling device to attract investment. Short- to medium-term growth prospects may be affected by lead times for the election campaign and formation of the government.  

    With economic growth and improvements in the labor market, poverty is expected to continue its gradual decline. Poverty, measured as income below the standardized US$5.5/day 2011 PPP line, is estimated to fall to around 18.7 percent by 2020. 

    Last Updated: Oct 25, 2019

  • Active Projects

    Project Spotlight

    Corridor 10 Highway. Serbia is located at the crossroads between East and West and represents the shortest link between Western Europe and Southeastern Europe, Greece, and Turkey. The Corridor 10 Highway is a major infrastructure project in Serbia, as it both connects the country to its neighbors and the wider region and serves as part of the pan-European transport network. By building the missing segments on Corridor 10 through Serbian territory—with funding from the World Bank and other international financial institutions—Serbia gets an uninterrupted highway from its northern and western borders to its eastern and southern borders. 

    The completed construction of Corridor 10 in line with modern standards will shorten travel time and provide safer connectivity along this international artery, benefiting all users as well as local communities by providing better linkages to markets and services.  

    The project’s expected positive impacts on people’s lives are manifold, especially in the areas of regional connectivity, local economic development, tourism, the environment, and cultural heritage. 

    Completion of this modern highway through Serbia, which will include the first fully automated tunnel control center, will also improve road safety and reduce road traffic accidents, thereby contributing to overall road safety in the country.  

    Building the highway will not only provide much-needed infrastructure, but also help to preserve nature and protect the environment for future generations. This has been ensured through carefully designed environmental management plans and monitoring and by applying international best practices in environmental protection and biodiversity preservation.  

    The new highway will have a positive impact on commercial and trade activities in Serbia and in the wider region and will contribute to regional development in the Western Balkans. Completion of Corridor 10 encourages sustainable development and enables Serbia to capitalize on its geographical position as the main transit country in the Trans-European road network. 

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LENDING

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

*Amounts include IBRD and IDA commitments



Additional Resources