The World Bank In Serbia

Country Context

Serbia rebounded strongly from the impact of the global pandemic, with growth reaching 7.4 percent in 2021. After a strong recovery in 2021, however, several domestic and international factors have caused an economic slowdown. Growth in 2022 is forecasted at 3.2 percent, with risks tilted to the downside. 

Challenges include the performance of the Serbian energy sector and availability of electricity and gas in the winter of 2022-23, as well as the rising cost of financing the fiscal deficit and debt obligations in light of higher interest rates. 

Inflation has also increased significantly, with adverse effects on incomes of the poor and vulnerable. Over the medium term, the Serbian economy is expected to slow down and return to pre-pandemic growth levels after 2024 at the earliest.

However, Serbia still faces challenges that limit its potential growth, both in the short and medium to long term. With limited space for future stimulus packages, structural reforms are needed to bring the economy back to sustained growth, boost jobs and incomes, and strengthen resilience to shocks – while gradually transitioning to a greener and more resilient development trajectory.

Last Updated: Oct 12, 2022

Strategy

Key Engagement

The World Bank Group’s current program includes support to sustainable infrastructure management, and to more resilient and inclusive growth that enables green transition. The Local Infrastructure and Institutional Development Project tackles the renewal, upgrade and greening of ageing infrastructure and public service delivery, which will provide for better access to markets, jobs and services, increase the attractiveness of cities and drive economic growth of towns and lagging regions. With US$200 million co-financing by the French Development Agency, the total project investment is US$300 million.

The US$50 million Scaling Up Residential Clean Energy Project is helping the residential sector improve energy efficiency through investments in clean and efficient heating solutions and rooftop solar photovoltaic systems. The project prioritizes investments in single-family houses, which rely on more polluting and less efficient coal and wood boilers for heating.

Next generation reforms are focusing on Serbia’s green agenda and transition to a low-carbon economy, improvement of public services delivery, and the promotion of economic initiative, entrepreneurship, innovation, and the digital economy.

In support of these reforms, new World Bank Group lending activities include the Green Transition Development Policy Loan series, aimed at accelerating reforms that would help secure a stable macro-fiscal framework for a green recovery, accelerate the clean energy transition, and implementation of climate commitments.

Alongside a Program for Results, a lending instrument focused on improving public financial management for service delivery and green growth is being prepared. These lending operations are leveraging substantial resources from other development partners (notably in co-financing from AFD and KfW). The World Bank Group is also engaged in strengthening the institutional, legal, and regulatory framework for capital markets development.

Last Updated: Oct 12, 2022

Recent Economic Developments

Serbia posted solid GDP growth in Q1 and Q2 of 2022 (4.3 and 3.9 percent, y/y), while unemployment declined to 9.2 percent in Q2. Poverty (income under $6.85/day in 2017 PPP) declined slightly from 12.2 percent in 2020 to 10.5 percent in 2021. Inflation has increased, despite the introduction of some price controls, reaching 12.8 percent in July 2022.

The consolidated fiscal deficit reached 0.2 percent of GDP in the first half of 2022. Public debt remained broadly stable throughout 2022, at 57 percent of GDP. The current account deficit widened to reach EUR 2.7 billion, largely on account of a major increase in energy imports.

Economic Outlook

Over the medium term, the economy is expected to grow at around 3 percent. Inflation should gradually decline, as commodity prices normalize. Poverty reduction is expected to gradually decline or stagnate in 2022, at around 9.9 percent.

The outlook depends on the war in Ukraine, further economic shocks, and the implementation of the domestic reform agenda. In particular, the ongoing challenges in the domestic energy sector underscore the importance of effective oversight and management of state-owned enterprises, as well as the risks to public finances associated with contingent liabilities.

Last Updated: Oct 12, 2022