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Serbia: FDI as Driver for Economy

Published: November 4, 2013; 21:32 · (Vindobona)

Further decline in FDI could affect economic growth in the Western Balkan state. The Serbian government announced to push forward with amendmends to improve business environment and boost economic growth.

Serbia: FDI as Driver for Economy / Picture: © Flickr

So far this year, € 584m in FDI have been invested in Serbia, which is a significant decline compared to the previous year. The Serbian government has therefore introduced an extensive strategy to boost foreign direct investments since the Serbian economy is widely dependent on foreign capital inflow on a long-term basis. The measures are set out to improve the business environment, which have so far been very well received by the economy.

The Serbian government has announced that improving economic growth and competitiveness was among the priorities. Prime Minister Ivica Dacic said that the main objective of the government is to increase employment, adding that this requires a clear economic policy and a clear concept that would allow the creation of a favourable business environment for foreign investors. Dacic said that the image of Serbia has changed in the world because of its solid path towards the European Union.

However, the underlying problems have existed for decades. Moreover, state-controlled enterprises have largely been dependent on state subsidies. According to the World Bank, these fundings have amounted to € 750m and have negatively affected the state budget.

According to Prime Minister Dacic, Serbia does not only want to become an EU member, but also actively participate in the European community of values. In future, Serbia´s government will put more effort into economic and social reforms to put the country’s economy back on solid feets again, Economy Minister Sasa Radulovic said. For Serbia, accession negotiations would be encouraging for further reform steps, he added.

The Serbian government announced to push forward with amendmends in the labor market policy, building, privatizations and banking policy. Moreover, the country intends to do away with inefficient bureaucracy, administrative burdens and improve both the judicial and the tax system. Besides that, Dacic wants to continue the dialogue with Pristina in order to stabilize the political stability in the Balkan region.

At the moment, Serbia is under substantial pressure. Above all, the fiscal situation is dramatic. Since 2008, Serbia´s fiscal situation has deteriorated drastically. The public debt quota has reached 65 percent of GDP this year. Only four years ago, the public debt quota stood at 40 percent of GDP.This year, the country is expected to record a budget deficit of more than 8.0 percent of GDP. Next year economic growth is forecast to increase to 1.5 percent. However, this will still depend on the progress the country will make to boost economic activity. As a result, Serbia is forced to implement radical reforms and austerity measures anyway to drastically increase economic growth and attract new investors.