Serbia, The fiscal strategy envisages a gradual stabilization of the budget

According to the Council’s forecast, the revised Fiscal Strategy envisages a gradual stabilization of the budget after several very turbulent years, which Serbia needs.

“Ever since the outbreak of the health crisis in 2020, which was later followed by the energy crisis, Serbia’s budget has recorded extraordinarily large deficits. High fiscal deficits were largely the result of large subsidies to the economy, indiscriminate giving to the population, covering the huge losses of public companies from the energy sector and others”, the Council stated in the analysis of the revised fiscal strategy for 2023 and projections for 2024 and 2025.

That, as indicated, cannot last indefinitely and the fiscal policy must now “get back on track”.

The revised Fiscal Strategy, prepared by the Government of Serbia, envisages the abolition of extraordinary state expenditures and the gradual balancing of the budget in the medium term.

The concrete plan from the strategy is to reduce the fiscal deficit from 3.8 percent of GDP, which is predicted to amount to 2022, in several steps to 1.4 percent in 2025.

It is planned that the public debt will fall from the current 57 percent of GDP to 54 percent at the end of 2025.

Before the outbreak of the health crisis, i.e. at the end of 2019, public debt was 52.8 percent of GDP.

An important part of the strategy is the announcement of the adoption of new legal rules (fiscal rules), which will increase the predictability of fiscal policy and better connect it with objective economic parameters, which the Fiscal Council supports.

“The revised Fiscal Strategy brings more realistic forecasts of macroeconomic trends, which are now noticeably worse compared to earlier expectations.” The first significant improvement of the strategy in relation to its Draft is more credible macroeconomic projections”, the Council assessed.

In the draft of the Fiscal Strategy, it was predicted that Serbia’s economic growth will return to the usual rates of four percent as early as 2023, as it was before 2020, and that inflation will slow down quickly and strongly. Now, however, it is estimated that the current macroeconomic deterioration is of a more permanent nature.

This means, as stated, that the revised strategy forecasts a GDP growth of only 2.5 percent in 2023, with a growth rate of four percent being reached only in 2025. Similarly, the average inflation in 2023 is projected at a rather high level of 11.1 percent, and its return to the target corridor of the National Bank of Serbia, which is three percent with a deviation of plus or minus 1.5 percent, is expected only in 2025. , possibly at the end of 2024, the council stated in the analysis.

It was pointed out that, in the current time of increased uncertainty, all macroeconomic forecasts are by definition unreliable and it is very likely that even the latest forecasts from the strategy will change in the coming months.

“However, the corrections of the forecasts that were made by the revision of the Fiscal Strategy were made in the right direction and we assess the foreseen macroeconomic framework as currently appropriate”, the Council stated.

It is estimated that the planned reduction of the fiscal deficit in the medium term will depend primarily on solving the problems of public companies from the energy sector.

“Although the planned reduction of the fiscal deficit from 3.8 percent of GDP in 2022 to 1.4 percent in 2025 seems at first glance to be a significant adjustment, it is actually not such an ambitious goal. The largest part of the 2022 deficit of 3.8 percent of GDP comes from covering the losses of Srbijagas and EPS (2.1 percent of GDP) and from three indiscriminate payments of funds for youth (0.4 percent of GDP). “Without these two expenditures, the budget deficit would already be less than 1.5 percent of GDP in 2022, which is the medium-term goal of reducing the deficit until 2025”, the Fiscal Council assessed, N1 writes.