Serbia is at a crossroads. Although current growth rates are improving incomes in Serbia, they are not bringing the country closer to average living standards in the European Union fast enough. The current 3-4 percent growth per year is at the upper end of Serbia’s current potential growth. To reach the European levels of prosperity, Serbia must embrace a new, ambitious agenda for reform.
With what we call the Serbia's New Growth Agenda, supported by sustained effort to maintain macroeconomic stability, Serbia can grow at 7 percent a year, on average, doubling its income in 10 years.Serbia’s New Growth Agenda: Summary
Acknowledging that this vision is highly ambitious, the New Growth Agenda outlines seven key areas for urgent and comprehensive action that could make this level of economic growth possible. Improving on these dimensions would bring highest benefits for growth.
- Boosting investment. Increasing public investment to at least 5 percent of GDP and facilitating private investment to above 20 percent of GDP annually, would support stability of high growth rates. Ensuring quality is essential as well.
- Financing for growing firms. Increasing credit to the private sector to the level closer to European benchmarks, including by enabling new financing instruments, would expand finance to young, small and medium enterprises, the new generation of firms. This could promote annual real GDP growth by about 1.3 percentage points.
- Skilling workers. With over two‐thirds of firms failing to find workers to implement expansion, improving education quality to produce skills relevant for the private sector could increase GDP growth rate by up to 1.3 percent.
- Raising productivity. Increasing firm‐level productivity and its annual growth from current low levels would enable higher value‐added production, more jobs, and higher wages. A one percent increase in productivity could lead to one percent increase in GDP.
- Promoting exports. Serbian exporters are on average twice as productive as other firms; increasing exports from 50 to 80 percent of GDP would boost growth. Improving infrastructure and removing behind‐the‐border constraints would increase both exports and FDI.
- Enabling business. A better regulatory framework, including improved predictability and transparency of administrative procedures, could reduce costs for business by 0.9 percent of GDP annually. Better enforcement would strengthen business practices in private and public sectors.
- Unleashing competition. Reducing government presence in the economy, especially through less ownership of or favorable treatment of SOEs, would reduce barriers to competition, eliminate distortions, and could save at least 1 percent of GDP in public funds for more productive use.
Along with maintaining macroeconomic stability, this policy agenda would constitute a national declaration that Serbia intends to seize the opportunity it has created for itself. None of this will come easy, but Serbia can safeguard its hard‐won macroeconomic stability and take its economic transformation to the next level.