Serbia’s annual investment of approximately five billion euros in infrastructure, including roads and hospitals, has seen significant growth since 2018. This increase was spurred by recommendations from the Fiscal Council and the IMF to accelerate public investments. However, the adoption of shortened procedures and special legislation, known as “lex specialis,” has raised concerns. The Fiscal Council warns that these measures, while initially beneficial, have led to risks such as corruption and costly borrowing. They advocate for a return to standard regulatory procedures to maximize the economic benefits of these investments.
Over the past decade, Serbia has ramped up public investments to around seven percent of GDP, one of the highest rates globally. Initially, bureaucratic inefficiencies in public administration were addressed through special procedures exempting projects from normal regulatory frameworks in areas like procurement and planning. Now, however, there is a consensus that reverting to sector-based project selection and transparent public tender processes would yield better outcomes than shortcuts.
Pavle Petrović, president of the Fiscal Council, emphasizes the need for state administration reform and adherence to EU accession standards, which require adherence to standard procedures. International financiers prefer loans tied to these standards due to lower interest rates, around two percent, compared to commercial bank loans exceeding six percent.
Nikola Pontera, director of the World Bank office in Serbia, stresses the importance of institutionalizing responsibility and incorporating environmental standards into infrastructure projects. He notes that adherence to standard procedures could yield a higher return on investment, citing previous analyses indicating a return of 0.55 cents per dollar invested.
For projects outside standard procedures, financing often comes from commercial banks at higher interest rates, while interstate loans offer more favorable terms. Veroljub Arsić, president of the Parliamentary Finance Committee, highlights the discrepancy in loan costs, illustrating with the example of the Moravian Corridor highway project.
The Fiscal Council urges caution against exceeding project budgets and calls for increased investment in neglected areas such as ecology and education. They argue that focusing on local road improvements may now be more economically viable than further expansion of the highway network, given the current coverage comparable to Central and Eastern European countries in terms of kilometers per capita.
