The World Bank In Serbia

Country Context

Serbia’s economic growth slowed in the first half of 2023 as decelerating private and public investment as well as elevated inflation hurt consumption and weighed on economic activity. Full-year economic growth is expected at 2%, with risks to the outlook tilted to the downside. Over the medium term, the Serbian economy is projected to grow steadily at around 3-4% annually, supported by increases in consumption and investment. Foreign direct investment is expected to continue to play a key financing role, while inflation is expected to decline gradually as energy and food prices normalize. Poverty in 2023 is estimated at 8%, down from 8.5% in 2022. The pace of poverty reduction has slowed in the context of weakening growth and the erosion of purchasing power of the poor, for whom food and energy costs account for a high proportion of consumption.  

Last Updated: Oct 10, 2023

Strategy

The World Bank Group’s program is defined by a joint strategy for Serbia, the Country Partnership Framework (CPF) FY2022-2026, which was delivered in May 2022. The CPF defines the World Bank’s engagement in the country focusing on growth that is greener and more resilient as well as strengthened and more inclusive service delivery. Key areas of World Bank Group support in Serbia include the macro-fiscal framework and structural reforms for greener growth, greener investments and (just) transition to a low-carbon and resilient economy, the business environment and regional integration, public financial management at central and local levels, and access to quality health and education services for the disadvantaged. 

The active portfolio reflects these priorities through 14 projects in the areas of transport (railways and local roads), real estate management/business environment, competitive agriculture, health and capital market development, public sector efficiency and modernization (including the digitalization of selected public services and the modernization of tax administration), green recovery, energy efficiency and early childhood education, as well as two regional projects aimed at facilitating trade and transport in the Western Balkans and connectivity along the Drina and Sava river corridors.

Key Engagement

The World Bank Group’s current program includes support to capital markets development, the green transition to a low-carbon economy, the improvement of public services delivery, and the promotion of economic initiative, entrepreneurship, innovation, and the digital economy. In support of these reforms, World Bank Group lending activities include the Green Transition Programmatic 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. In parallel, a Program for Results lending instrument focused at improving public financial management for service delivery and the green transition provides operational support to the implementation of these agendas. These lending operations leveraged substantial resources from other development partners. In addition, the World Bank is supporting improvements in the health system and addressing noncommunicable diseases in Serbia. 

Last Updated: Oct 10, 2023

Recent Economic Developments

Following weak GDP growth in Q1 and Q2 (0.9% YoY and 1.7% YoY, respectively), caused by a significant decline in investment and to some extent by declining consumption, growth is expected to accelerate in the remaining part of the year. With lower energy imports as well as compressed non-energy import demand, net exports made a positive contribution to growth in the first half of 2023. Inflation peaked at 16.2% in March 2023, the highest since CPI measurement started in 2007 moderating to 12.5% in July. Higher than planned collection of corporate income taxes and contributions for social insurance led to better than planned fiscal performance. Total revenues rose 12.6% in nominal terms in the first half of the year, and expenditures increased by 7.7%, turning the consolidated fiscal deficit into a surplus of an estimated 0.6% of GDP. Public debt remained broadly stable at around 56% of GDP. The current account deficit shrank to only 0.8% of GDP, marking an 82% drop YoY, driven by a major decrease in the trade deficit. Foreign currency reserves reached a record high EUR 22.6 billion.

Economic Outlook

Serbia’s economy is expected to grow at around 2% in 2023, driven primarily by consumption. The impact of Russia’s invasion of Ukraine, a slowdown in global growth and tighter financing conditions, were key factors for the downward revision of 2023 GDP growth. Further revisions are possible depending on the performance of the economies of Serbia’s main trading partners. The outlook also crucially depends on the domestic reform agenda and its implementation. Structural reforms in education and SOEs, along with further improvements in governance would deliver growth returns and help to raise the quality of foreign investments in Serbia. 

Last Updated: Oct 10, 2023