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OPINIONSeptember 16, 2022

In a Crisis-Laden World, Serbia Should Think Green

Op-ed originally published in Kurir daily on September 16, 2022.

Countries around the globe are facing persistent economic headwinds. Trade and supply chain disruptions resulting from the Covid-19 pandemic, the war in Ukraine and extreme weather, have led to surging food and energy prices. Inflation is increasing at an alarming rate in many countries and economic growth is slowing. Policy makers around the world face difficult challenges and complex trade-offs. They need to maintain fiscal sustainability and rebuild economic buffers depleted during the pandemic; but also cater for the needs of the most vulnerable, who feel the impact of higher food and energy prices. As winter is approaching, countries in Europe are scrambling to secure sufficient energy supplies to keep homes warm and factories running. In this challenging context, the urgency of actively expanding renewable sources of energy, pursuing greater resource efficiency, and transitioning away from energy and emission-intensive industries is greater than ever.

Growth outlook

The World Bank expects global economic growth to slow in 2022 to 2.9 percent, from 5.7 percent in 2021. A small and open economy like Serbia will feel the impact of the global slowdown. For Serbia, in 2022, we project an economic growth rate of 3.2 percent, following a 7.4 percent expansion in 2021. Serbia is equally feeling the impact of rising inflation: the NBS expects an inflation of nearly 14 percent in the third quarter of this year.

Higher energy prices have put pressure on current account balances for energy importers around the world. Serbia has also been affected. Its utilities have incurred exceptionally high costs of importing electricity and natural gas on the wholesale markets. While the government has financially supported these companies, it has so far only partially passed these additional costs on to consumers.

Mitigating the impacts of the energy crisis remains the biggest challenge for the new government. Serbia entered the current crisis in a strong macro-fiscal position, but fiscal space is limited. Short-term measures to support households and small and medium enterprises will need to be targeted, time-bound, fully budgeted, and transparent.

Despite the pressures, it is essential that policymakers do not lose sight of structural reforms that would boost Serbia’s potential rate of economic growth over the medium-term, including steps to increase market competition, reform state owned enterprises, raise human capital and productivity, and improve the efficiency of public spending.

Green Serbia

Sustaining long-term growth and resilience also requires putting the ‘green agenda’ at the center of policymaking. The country can do more to increase energy efficiency and lessen the impact of pollution on the health of people and the environment. Staying ‘brown’ runs the risk of slowing down Serbia’s accession to the EU, compromising access to finance, creating trade barriers, limiting the take up of modern technology, and failing to boost productivity. Going ‘green’ would be beneficial on all these fronts. It would also facilitate the structural transformation of the economy through the adoption of new technologies and knowledge. All this will require measures to facilitate a ‘just transition’ for workers and communities who depend on polluting industries for their livelihoods.

Serbia is a signatory to the Paris Agreement under the United Nations Framework Convention on Climate Change, aiming for a climate neutral world by mid-century. The Government recently published its updated Nationally Determined Contribution under the Paris Agreement, pledging to cut greenhouse gas emissions by 2030 by 33.3 percent compared to 1990.  Accompanying plans and strategies are under preparation, but the direction of travel is clear: Serbia urgently needs to boost domestic renewable energy production, increase energy efficiency, and gradually lower dependency on fossil fuels, especially coal and oil, for power generation, heating, and transport.

The World Bank is supporting Serbia’s progress on all these fronts both through financial and technical assistance.

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