The December presentation of the Quarterly Monitor highlighted a concerning shift in the relationship between remittance inflows and outflows related to interest and dividends. In the third quarter of this year, this ratio deviated significantly from the long-term trend, with interest and dividend expenditures exceeding remittance inflows by 20%.
Milojko Arsić, a professor at the Faculty of Economics and editor of the Quarterly Monitor, pointed out that ten years ago, the ratio between remittances and interest/dividend expenses was much more favorable, with expenses being only half of the remittance income. This year, however, the situation has reversed. By the end of the third quarter, interest and dividend expenses amounted to almost 90% of remittance income, and in the third quarter, these expenses exceeded remittance inflows by 23%, which Arsić acknowledged may be an anomaly, but still reflected a worsening trend.
For 2024, Serbia’s budget has allocated approximately 1.6 billion euros for interest payments, while outflows due to dividends have more than doubled compared to last year, reaching 2.12 billion euros by the end of October.
According to data from the National Bank of Serbia, remittances totaled 3.26 billion euros by the end of October, marking a 4% decrease compared to the previous year. Meanwhile, foreign direct investments (FDI) reached 3.5 billion euros, putting all three indicators—remittances, foreign investments, and interest/dividend outflows—at similar levels.
Arsić explained that the increase in interest and dividend expenses over the past decade stems from the growth of foreign capital in Serbia and the rising external debt. As foreign direct investments increase, the outflow of dividends follows suit. Initially, foreign investors reinvest profits in Serbia, but over time, they begin to withdraw profits and invest elsewhere to seek higher returns. This trend is expected to intensify in the future.
External debt has also increased significantly in the past decade, contributing to growing interest payments, which are likely to continue rising. Consequently, in the future, remittance inflows may no longer be able to cover these increasing outflows for interest and dividends.
Arsić also noted that foreign direct investments for the first three quarters of the year reached a record 3.2 billion euros and could total 4.5 billion euros by the end of 2024. However, he emphasized that the outflow of interest and dividends for the first three quarters was similar to the level of foreign direct investment, and with further inflows of foreign capital and increasing debts, this trend will likely continue.
Looking ahead, Arsić warned that Serbia may not be able to finance its trade deficit through remittance surpluses as in the past. Instead, the country will have to rely more on foreign capital inflows, though there is uncertainty about the sustainability of these inflows. Many Central and Eastern European countries have already seen a decline in investment due to rising business costs and the resulting “migration” of foreign investors to more profitable regions.
