Competitiveness and Sustainable Economic Development in Serbia

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Competitiveness and Sustainable Economic
Development in Serbia

• South Eastern Europe After EU Enlargement and
  Before Accession
• 4-5 April 2005
• Jelena Galic
• Economics Institute, Belgrade

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1. Competitiveness as a Strategy
Healthy market environment suitable for a larger
inflow of foreign investments and investments
in general
Enhancement of the competitiveness of domestic
producers (by increasing value added, through
the modernization of material, technological and
information infrastructure, as well as an
efficient allocation of economic resources) and
an increase in exports
Sustainable economic development - servicing of
foreign debt - financing of investments in new
equipment and technology - increase in GDP and
living standards







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2. The Results of Reforms Demand-Based Growth

• Achieving economic growth and macroeconomic
  stability
• Large inflow of net capital
• Donors assistance (5 of GDP over the period
  2001-2004),
• Rescheduling of foreign debt (Paris and London
  Club and IBRD),
• Privatization revenues (4.3 of GDP in 2003 and
  0.7 of GDP in 2004),
• Remonetization based on the inflow of foreign
  exchange funds, which were outside the domestic
  banking system, and increased intermediation
  resulting from an abrupt increase in foreign
  currency deposits (from 1 million in 2000 to
  2.07 billion in 2004).
• Serbias public debt was reduced from 119 of GDP
  in 2000 to 80 of GDP in 2004
• Official foreign reserves increased considerably
  from USD 516 million (at end 2000 1.2
  month-imports of goods and services) to USD 3.55
  billion (at end 2003 4.4 month-exports), i.e.
  USD 5.15 billion (at end 2004).
• Given the expected decrease in the inflow of net
  capital, the hitherto demand-based domestic
  growth and resulting high current account deficit
  and fiscal deficit are becoming unsustainable.

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Main Macroeconomic Indicators
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3. Challenges to Macroeconomic Stability in
the Coming Period

• The large and inefficient public sector remains a
  serious obstacle to growth, the agent of which is
  the private sector (in 2004, consolidated public
  consumption in Serbia amounted to 45.3 BDP).
• The level of investment in Serbia is insufficient
  to support sustainable growth. The ratio of
  investment to GDP recorded a mild increase, from
  14.2 in 2000 to 16.5 in 2004. However, it is
  still low in comparison with the regional
  standards (in Bulgaria and Croatia, it is about
  20).
• Servicing of foreign debt at the end of 2004,
  it amounted to c. USD 13.5 billion.

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4. Competitiveness of the Domestic Economy

• A steady increase in the foreign trade deficit
  points to the existence of long-term and
  structural obstacles to the revival of
  competitiveness of the domestic economy.
• Foreign trade deficit in Serbia, 1998-2004, in
  mil usd
• Despite the liberalization of foreign trade,
  there are still certain unfavourable trends
• Unfavourable pattern of exports dominance of
  low-grade finished products, i.e. labour and
  resource-intensive ones (agricultural products
  and low-grade finished manufactures),
• Imports include energy products, low-grade
  finished textiles (intended for outward
  processing) and specified technology and
  capital-intensive products (mostly consumer
  goods),
• Higher diversification of exports, which points
  to their very low specialization and a lack of
  the strategy of recognizable national exports.

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SM Exports by Sector (in USD mil.) and Share in
Total Exports (in )
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SM Imports by Sector (in USD mil) and Share in
Total Exports (in )
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Factor Intensity of Serbias Trade with the EU
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Competiveness of the Serbian Economy According to
the World Economic Forum

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5. Toward the Policy of Competitiveness/Sustainabl
e Economic Development and EU Accession

• In the coming period, sustainable economic
  development will be based on the export-oriented
  economy and exports with a higher value added.
• The set of economic policy measures aimed at
  enhancing the global competitiveness of the
  Serbian economy should be geared to
• Maintenance of macroeconomic stability (by
  implementing monetary, fiscal and foreign
  exchange policies in an adequate way).
• More intensive implementation of
  second-generation reforms geared to
• Creation of a more attractive investment
  environment and larger FDI inflow
• MSP sector development and better performance of
  the export-oriented sector of the economy
• Further development and strengthening of
  institutional infrastructure
• Confrontation with the painful process of
  restructuring large public enterprises
• Adequate trade policy and trade integration
  policy, including all 3 forms of integration
  regional, multilateral and European.