Wednesday, May 6, 2009

Economic crisis and its effects on Serbia

According to IMF, chances for recovery of European developing markets, including the one in Serbia, in 2010 and 2011 do exist but are small. Financial pressures on Central, Eastern and Southeast Europe are intensifying. Among other things, they are reflected in cancelations or postponement of loans and investments as well as in the possibilities that major European banks sell their branches in developing countries in order to save the capital for domestic markets. Majority of countries of Eastern and Southeast Europe, including Serbia, are very dependent on the West European banks, in the first place those from Austria, Germany and Italy. At recent G20 summit, a decision was made over increase of assets at the IMF disposal. The report presented states that the losses caused by the world crisis until the end of 2010 would amount to 4,050 billion Dollars. According to the IMF the banks shall suffer two thirds of that loss what is almost two times more than initially projected amount of 2,200 billions corrected in January to 2,700 billion Dollars.
In the January report by Dun & Bradstreet (D&B), a company that provides credit information on businesses and corporations, it was said the worsening of the global economic situation is starting to affect Serbia as well. The report claims that Serbia is still a country of high risk, with a DB5 rating. Out of four factors that influence the final rating, as the indicator or risk for the business environment in a certain country - political, macro-economic, commercial and external, political tremors are mostly responsible for the high risk rating Serbia received.
Since the increase of Serbian economy during the last years had been dictated by the increase of export, foreign investments and personal expenditure, the short-term perspective of Serbian macro economy will be affected by the decrease of global solvency, decrease of foreign investments in countries with increased risk rating, as well as the economic decrease in main EU countries, which are also trade partners of Serbia, the report states.
As the consequence of this state of affairs, D&B is expecting the decrease of Serbian growth to 2,5% in 2009 and 3,5% in 2010, compared to the average economic growth of 6,9% in the 2004- 2008 period.
The economic crisis in Serbia has severely hit small business sector, whereas 10,000 small enterprises have been closed down since the start of 2009, as Belgrade daily "Blic" reports.The reasons for this lay in the reduction of citizens' purchasing power, insolvency, grey economy and strong competition from large retail chains.
According to the Agency for Business Registers, 10,508 enterprises have been erased from the register as of January 1, i.e. five percent of the total number of registered companies in Serbia. Majority of closed enterprises are retail shops, hair & beauty salons, dentist and veterinary offices, as well as small shops offering various services.
Other sectors of Serbian economy are affected with the global economical crisis as well. Industrial production in Serbia in February recorded drop of 21.9 percent in relation to the same period of the last year. The mostly affected is the metal industry. This is not very good news since this segment of Serbian industry has been so far the biggest contributor to the total export of the country.
The main element of the Serbian strategy for improving the business environment is the passing of the restrictive budged for 2009. The aim of this budget is a deficit that equals 1,5% of GDP, in accordance with IMF recommendations. The government is planning to cover the decrease of deficit from 2,7% (2008) to 1,5% in 2009 with profits from privatization, new credits and the increase of taxes on gas, coffee and cigarettes, the report states. In accordance with the expectations of a quick economic decrease, D&B believes that the deficit in Serbia will surpass the planned 1,5%.(ANSAmed).
As news Agency Tanjug reports, the Prime Minister Mirko Cvetkovic said on April 29th 2009 that the IMF has forwarded proposal for the two-year stand-by arrangement in the amount of EUR 3 billions. According to his words, the proposal covers in full all of the measures suggested by Serbian Government within a package for economic stability of the country.
“The arrangement with the IMF represents important support to macroeconomic stability of Serbia. It is also a strong positive signal to other international financial institutions but also to investors to continue investing in Serbia. We expect the IMF Board of directors to approve this arrangement on May 11”, the Prime Minister said. The arrangement understands consolidated sector deficit, i.e. budget deficit of 3 percent of the GDP. The Government has already adopted measures for cutting of costs in the public sector and for decrease of budget income in 2009.

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