Serbia: country overview

04 September 2012
by Ina Dimireva -- last modified 04 September 2012

Mismanagement of the economy, an extended period of international economic sanctions, and the damage to Yugoslavia's infrastructure and industry during the NATO airstrikes in 1999 left Serbia's economy only half the size it was in 1990.

null

Member of Schengen area: No

Political system: Republic

Capital city: Belgrade

Total area: 77 474 km²

Population: 7.4 million

Currency: Serbian dinar

Economy overview

Serbia has a transitional economy mostly dominated by market forces, but the state sector remains large and many institutional reforms are needed. The economy relies on manufacturing and exports, driven largely by foreign investment. MILOSEVIC-era mismanagement of the economy, an extended period of international economic sanctions, and the damage to Yugoslavia's infrastructure and industry during the NATO airstrikes in 1999 left the economy only half the size it was in 1990. After the ousting of former Federal Yugoslav President MILOSEVIC in September 2000, the Democratic Opposition of Serbia (DOS) coalition government implemented stabilization measures and embarked on a market reform program. After renewing its membership in the IMF in December 2000, Yugoslavia continued to reintegrate into the international community by rejoining the World Bank (IBRD) and the European Bank for Reconstruction and Development (EBRD). Serbia has made progress in trade liberalization and enterprise restructuring and privatization, but many large enterprises - including the power utilities, telecommunications company, natural gas company, national air carrier, and others - remain in state hands. Serbia has made some progress towards EU membership, signing a Stabilization and Association Agreement with Brussels in May 2008, and with full implementation of the Interim Trade Agreement with the EU in February 2010, but a decision on candidate status has been postponed to 2012. Serbia is also pursuing membership in the World Trade Organization, and accession negotiations are at an advanced stage. Structural economic reforms needed to ensure the country's long-term prosperity have largely stalled since the onset of the global financial crisis. Serbia, however, is slowly recovering from the crisis. Economic growth in 2011 was 2.0%, following a modest 1.0% increase in 2010 and a 3.5% contraction in 2009. High unemployment and stagnant household incomes are ongoing political and economic problems. Serbia signed a new $1.3 billion Precautionary Stand By Arrangement with the IMF in September 2011 that was set to expire in March 2013, but the program was frozen in early 2012 because the 2012 budget approved by parliament deviates from the program parameters. Growing deficits constrain the use of stimulus efforts to revive the economy, while Serbia's concerns about inflation and exchange rate stability preclude the use of expansionary monetary policy. Serbia adopted a new long-term economic growth plan in 2010 that calls for a quadrupling of exports over ten years and heavy investments in basic infrastructure. Since the plan was adopted, Serbia has increased its exports significantly. Major challenges ahead include: high unemployment rates and the need for job creation; high government expenditures for salaries, pensions and unemployment benefits; a growing need for new government borrowing; rising public and private foreign debt; attracting new foreign direct investment; and getting the IMF program back on track. Other serious challenges include an inefficient judicial system, high levels of corruption, and an aging population. Factors favorable to Serbia's economic growth include a strategic location, a relatively inexpensive and skilled labor force, free trade agreements with the EU, Russia, Turkey, and Central European Free Trade agreement countries; and a generous package of incentives for foreign investments.