World Bank Supports Greater Transparency and Efficiency in Public Service and Public Enterprises in Serbia

January 18, 2017

WASHINGTON, January 18, 2017 — The World Bank’s Board of Executive Directors today approved a Euro 182.6 million (US$200 million equivalent) development policy loan supporting the Government of Serbia in improving its management of public expenditures and making energy and transport public utilities more efficient and financially sustainable.

The First Public Expenditure and Public Utilities Development Policy Loan (PEPU DPL) - the first in a proposed series of two operationssupports the Government of Serbia's multi-year effort to raise the efficiency and effectiveness of public spending and transform the energy and transport sectors. These reforms are important strategic objectives in the context of Serbia’s EU accession process.

“A more efficient public administration and performing public utilities are among the critical missing links in making the Serbian economy more investment friendly,” said Ellen Goldstein, Country Director for the Western Balkans. “The reforms supported under this program will therefore help attract private investors and contribute to job creation.”

Regarding public expenditure management, the main challenge facing Serbia today is improving the quality of public services, such as education and health, while controlling the public sector wage bill. The program supports reforms that will reduce public expenditures and address bottlenecks to improved delivery of these critical services to Serbian citizens. Reforms include revising the legislative and policy framework for public sector employment, reforming the pay and grading system, and adjusting staffing levels in a structured manner.

“The development policy loan supports implementation of challenging reforms that are critical to the Government of Serbia’s fiscal consolidation and structural reform agenda,: said Ashley Taylor, World Bank Senior Economist. “Their successful implementation will deliver benefits to households by improving economic efficiency and creating the foundations for faster growth and private-sector led job creation.”

Improvements in the efficiency and financial sustainability of Serbian public utilities, particularly in the energy and transport sectors, are needed from a fiscal and investment climate perspective. Public Enterprises and State-Owned Companies operating in these sectors have historically been a significant source of fiscal risk. Yet, sector reforms have been long delayed due to systemic institutional weakness and strong vested interests.

The government has initiated an ambitious reform program for these entities with the adoption of financial consolidation plans supported by the PEPU DPL. For example, adjustments in electricity tariffs have been adopted, accompanied by measures to limit their impact on vulnerable households, while efforts are being made to improve operational efficiency in the electricity utility through reducing labor costs.

In terms of rail service, a new financing policy and performance criteria will guide the operation of new state rail companies, and a process of labor rightsizing is ongoing. Apart from generating fiscal benefits, enhanced efficiency in these companies will also improve Serbia’s investment climate, by addressing infrastructure deficiencies and providing rapid access to reliable electricity which continue to feature among the concerns listed by potential investors in Serbia.

“Important progress has been achieved in the implementation of long overdue reforms in the energy and transport sectors”, said Claudia Ines Vasquez Suarez, World Bank Senior Energy Economist. “But, it will be critical to maintain the momentum so as to deliver the desired transformation, reduce fiscal risks and improve service delivery to the people of Serbia.”

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