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Country Report

Serbia

Generated on November 11th 2020

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Serbia 1

Serbia
Summary
2 Briefing sheet

Outlook for 2021-25

4 Political stability
4 Election watch
5 International relations
6 Policy trends
6 Fiscal policy
7 Monetary policy
7 International assumptions
7 Economic growth
9 Inflation
9 Exchange rates
9 External sector
10 Forecast summary

Data and charts

11 Annual data and forecast
12 Quarterly data
12 Monthly data
14 Annual trends charts
15 Monthly trends charts
16 Comparative economic indicators

Summary
16 Basic data
18 Political structure

Recent analysis
Politics
21 Analysis

Economy
22 Analysis

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Serbia 2

Briefing sheet
Editor: Joan Hoey
Forecast Closing Date: November 2, 2020

Political and economic outlook

The governing Serbian Progressive Party (SNS) won a landslide victory in the June 2020
parliamentary election, securing 61% of the vote (on a modest turnout) and three-quarters of all
seats in parliament. The main opposition parties boycotted the vote.
This confirmed the political dominance of the SNS and the president, Aleksandar Vucic. Serbia
will effectively be governed by one-party rule, albeit only for two years, as Mr Vucic called for
an early election in April 2022 to coincide with the presidential poll.
Opposition will mainly take extra-parliamentary forms. There is a risk of popular protests and
elevated social unrest, especially if the coronavirus pandemic persists during 2021.
Serbia is pursuing EU accession, but the Kosovo issue, concerns over the rule of law and
enlargement fatigue in the EU will prevent membership before 2025. With accession a distant
goal, Serbia will continue to cultivate relations with China and Russia.
The policy response to the coronavirus pandemic, together with rising unemployment, will see
a spike in the fiscal deficit to about 8% of GDP in 2020 and lift public debt above 60% of GDP.
The public finances will recover gradually over the forecast period (2021-25).
Given earlier lockdown restrictions and lower global demand, The Economist Intelligence Unit
expects a 1.5% drop in real GDP this year, a modest fall by regional comparison. After a
rebound of4.5% growth in 2021, we forecast average growth of 2.5% per year in 2021-25.
Serbia has a reasonable level of foreign-exchange reserves and has attracted solid capital
inflows in recent years, but a large external financing requirement implies some vulnerability in
the face of international investor risk aversion.
Key indicators
2020a 2021b 2022b 2023b 2024b 2025b
Real GDP growth (%) -1.5 4.5 2.0 2.7 2.6 2.7
Consumer price inflation (av; %) 1.6 2.1 2.6 2.4 2.4 2.2
Government balance (% of GDP) -8.0 -3.5 -2.4 -2.3 -2.6 -2.0
Current-account balance (% of GDP) -6.4 -5.4 -5.7 -6.4 -6.4 -6.8
Money-market rate (av; %) 1.0 1.1 1.6 2.2 2.7 2.8
Unemployment rate (%) 9.8 12.4 12.9 12.7 11.9 11.1
Exchange rate RSD:US$ (av) 103.3 100.9 102.3 98.9 96.5 95.1
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

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Serbia 3

Key changes since September 22nd

The number of coronavirus cases has risen sharply in Serbia since early October, mirroring
developments in most of Europe. The number of domestic virus-related daily deaths has
remained at a low level, but the possibility of a tightening of restrictions has increased.
The prime minister, Ana Brnabic, who was nominated for a second term in early October,
unveiled her new cabinet on October 25th and parliament approved the new government on
October 28th.
In October the IMF and Serbian officials reached provisional agreement on policies needed to
complete the fifth (and final) review under the country's Policy Co-ordination Instrument. The
IMF has called for progress on structural reforms.
We have revised our estimate for the fiscal deficit in 2020 to 8% of GDP (from 9% previously),
owing to a stronger than expected trend in indirect tax revenue over recent months. We have
revised our 2021 deficit forecast to 3.5% of GDP (from 4.6%).

The month ahead

November 12th—National Bank of Serbia monetary policy meeting:: We expect the central
bank to leave the policy rate unchanged at 1.25%, given the relative resilience of economic
activity since mid-year, along with stable trends in inflation and the exchange rate. It will retain
an easing bias amid a weakened labour market and rising virus risks.
November 30th—Real GDP (Q3); retail sales, industrial production (October): We expect
provisional data to show a strong bounce-back in July-September output (in quarterly terms),
after a 9% slump in April-June. October data are likely to show ongoing, but softer, growth in
retail and industry, amid signs of weakening momentum.
November/December—Meetings of Serbia and Kosovo officials: EU-mediated talks on political
issues are scheduled to resume, following the postponement of a scheduled meeting in late
September. Little meaningful progress is expected.

Major risks to our forecast

Scenarios, Q3 2020 Probability Impact Intensity
Creeping authoritarianism in response to Covid-19 crisis provokes social
High High 16
unrest and political instability
The impact of the Covid-19 pandemic on the economy is debilitating High High 16
Very
Covid-19 crisis results in protracted supply-chain disruption Moderate 15
high
Diminishing prospect of EU membership increases the likelihood of Serbia-
High Moderate 12
Kosovo stalemate
Limited progress in public administration reforms hinders business
High Moderate 12
operations
Note. Scenarios and scores are taken from our Risk Briefing product. Risk scenarios are potential
developments that might substantially change the business operating environment over the coming two
years. Risk intensity is a product of probability and impact, on a 25-point scale.
Source: The Economist Intelligence Unit.

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Serbia 4

Outlook for 2021-25

Political stability
The governing Serbian Progressive Party (SNS)—led by Aleksandar Vucic, the president—
secured a landslide victory in the June parliamentary election. With the main opposition parties
boycotting the poll, in protest that it was neither free nor fair, the SNS received 61% of votes cast,
giving the party 188 deputies in the 250-seat parliament (up from 48% and 131 seats at the 2016
election). Turnout was the lowest in decades, at 49%, reflecting the opposition boycott and the
coronavirus (Covid-19) pandemic. The SNS also swept the board in local and municipal elections
held at the same time. With the party the dominant political force at all levels of the state and
government, its victory cemented the shift in Serbia to effective single-party rule under the
powerful Mr Vucic.
The prime minister, Ana Brnabic, who was nominated for a second term in early October, unveiled
her new cabinet on October 25th and parliament approved the new government on October 28th.
Before the government was even formed, Mr Vucic announced that it would have only a two-year
mandate as there would be a pre-term election in April 2022. By holding the next parliamentary
election at the same time as the presidential election and the municipal polls in the capital,
Belgrade, the president hopes to concentrate his party's resources and score a triple victory.
By bringing forward the election, Mr Vucic also wishes to address the issue of the new
government's legitimacy: the absence of a genuine opposition in the legislature deprives the SNS
of even the pretence of parliamentary challenge over policy and legislation. As with previous
SNS-led governments, this one is in partnership with the Socialist Party of Serbia (SPS), which
helps to burnish the legitimacy of SNS rule by maintaining continuity with previous governments
and drawing on a wider base of parliamentary representation. In another move aimed at enhancing
the government's appeal and legitimacy, 11 women have been appointed to the 23-member
cabinet, including to leading portfolios such as the economy and energy, and several non-party
independents (including women) have been appointed to other important ministries such as
justice and labour.
The political hegemony of the SNS does not imply political stability: it is a veneer over underlying
fragility, amid high levels of poverty and corruption, low public trust in political institutions, and
public resentment (concentrated in Belgrade and other major cities) over state capture of the
media and judiciary. The Economist Intelligence Unit expects opposition to the SNS to take an
extra-parliamentary form in coming years. Amid an economy weakened by the pandemic, we
expect increasing polarisation of the political scene.

Election watch
The next presidential election is scheduled for April 2022. The next parliamentary election had
been scheduled for June 2024, but Mr Vucic announced in October that it would be brought
forward to 2022, to coincide with the presidential and municipal polls. The announcement was
intended to demonstrate his commitment to public accountability and also to disarm liberal critics
of the SNS's political hegemony.

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Serbia 5

International relations
Serbian foreign policy goals include EU integration, and maintaining good relations with Russia
and China. This multi-dimensional foreign policy was evident from the government's response to
the pandemic, with Mr Vucic keen to stress Serbia's strong ties with China (which has provided
medical advisers and equipment), in part to apply leverage over the EU. Serbia has opened 18 out
of 35 chapters in its accession talks with the EU and has provisionally closed two. Faster progress
has been constrained by EU concern about Serbia's reform efforts pertaining to the rule of law and
the normalisation of Kosovo relations. The latest European Commission report, published in
October, detailed Serbia's limited progress in most policy areas over the past year and expressed
particular concern about democratic backsliding in the electoral sphere.
Formal talks between Serbia and Kosovo resumed in July after a 19-month hiatus. In September
the two sides signed a modest US-mediated agreement on "normalising" economic relations, but
this falls well short of a wider settlement of the Serbia-Kosovo conflict. Room for compromise on
the far more contentious issue of a political agreement will be constrained by domestic tensions in
both Serbia and Kosovo. In mid-2018 Mr Vucic and Hashim Thaci, the president of Kosovo,
broached the options of territorial exchanges or border adjustment as part of a normalisation of
relations and final settlement. The US has given consideration to the proposal, but the EU is firmly
opposed to any border adjustment. Our view has long been that a territorial swap will not occur,
given opposition from Kosovo political forces and EU member states, and the inherent difficulties
of implementing a new border. The most likely prospect is continuing de facto partition and a
frozen conflict fraught with low-level tension.

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Serbia 6

Policy trends
Serbia's policy response to the pandemic has been quite substantial in a regional context,
comprising fiscal aid from the government—in two packages adopted in April and July—and
monetary stimulus by the National Bank of Serbia (NBS, the central bank) via lower interest rates
and measures to preserve liquidity in the financial system. Serbia has received financial assistance
from the EU to support the economy and for medical equipment. The government is in talks with
the US International Development Finance Corporation over a loan-guarantee scheme in 2021. It
may also seek bilateral loans from institutions such as the World Bank and from China, but it does
not intend to seek IMF support.
The government's fiscal packages mostly emphasised measures to support near-term liquidity,
salaries and business survival during the lockdown, with the aim of limiting permanent economic
"scarring".
The main elements were:
a pledge to pay the standard monthly minimum wage (about €250) to every employee of a micro,
small and medium-sized firm for a three-month period (with reduced payments for larger
companies), on the condition that firms did not lay off more than 10% of their workforce;
deferral of some business tax payments and a three-month moratorium introduced by the NBS
on bank loan repayments; a new moratorium was agreed for August and September; a one-off
payment of RSD11,700 (US$117) to every citizen older than 18 (about 5m people) and an
additional one-off payment of RSD4,000 to pensioners;
subsidies to employers to encourage post-crisis hiring of new university and college
graduates;
an RSD240bn (US$2.4bn) state-backed loan-guarantee facility for firms (with more lenient
repayment terms in the tourism, hospitality and transport sectors); and
a 10% wage rise for healthcare workers and an RSD2.2bn cash injection into the state
healthcare fund.
New economic support packages may be adopted if the virus situation worsens dramatically, but
limited fiscal space implies that these would be significantly smaller in scope and targeted at the
hardest-hit sectors.
Improved macroeconomic and financing conditions in recent years have attracted higher capital
spending in Serbia from foreign and domestic sources. Alongside more resilient public finances,
this has bolstered the capacity of the economy to respond to the pandemic. However, there is also
underlying fragility in the form of high poverty levels, an underdeveloped private sector, a weak
institutional and regulatory framework, relatively poor education and healthcare systems, and
widespread corruption. Weakened public finances will limit the scope for post-crisis reform in
these areas.

Fiscal policy
In 2014-17 Serbia implemented a consolidation of about 7 percentage points in the general
government fiscal balance, which in 2017 recorded the first surplus in more than a decade, of 1.1%
of GDP. Amid a more expansive fiscal stance and rapid public-sector wage growth, the surplus
narrowed to 0.6% of GDP in 2018 and there was a modest deficit of 0.2% in 2019. To limit the
economic damage from the pandemic, sizeable fiscal measures were introduced in April and July,
at a total estimated cost of 8.4% of GDP. The full-year deficit is forecast to widen to 8% of GDP,
amid substantially higher spending and reduced tax revenue. This implies a large gross financing
requirement, but the issuance in May of a seven­year €2bn Eurobond, alongside solid activity in
the domestic debt market, means that most of this year's financing needs are covered. Borrowing
costs for the Eurobond are about twice as high as for available IMF loans, with the spread over
German seven-year bonds at 340 basis points. However, Serbia is resistant to taking on new IMF
debt that would come with conditionality on how the funds are allocated. We expect the large
fiscal deficit to decline steadily in 2021-22. Having fallen in recent years, the public debt/GDP ratio
is forecast to jump from 52% in 2019 to a peak of 62% in 2021, easing gradually thereafter.

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Serbia 7

Monetary policy
The NBS runs an inflation-targeting monetary policy with a multiyear target of 3%
(±1.5 percentage points). In the past two years the NBS has loosened policy considerably, like
most central banks. In 2019 it lowered its policy interest rate (the one­week repurchase—repo—
rate) on three occasions, from 3% to 2.25%. After the coronavirus outbreak in early 2020 the NBS
cut its policy rate on three more occasions between March and June, to an historic low of 1.25%—
below the level of inflation, which averaged 1.8% in June-September. It also implemented new
measures to safeguard liquidity in the financial sector and the wider economy, with recent
incentives aimed at encouraging bank lending. The NBS has continued to intervene in the foreign-
exchange markets to contain the currency's volatility, making the dinar one of the best-performing
and most stable emerging-market currencies.
Risk aversion in global financial markets has moderated in recent months, but sentiment remains
jittery, given the uncertain course of the pandemic. Domestic activity has rebounded firmly since
May, amid slightly higher (but still modest) inflation. We expect the NBS to retain an easing bias
in its policy stance, given a weakened labour market and rising virus risks. Our forecast is for the
policy rate to fall to 1% in early 2021, with the NBS adopting a gradual tightening bias from 2022.

International assumptions
2020 2021 2022 2023 2024 2025
Economic growth (%)
US GDP -4.6 3.6 2.6 2.3 2.0 2.0
OECD GDP -6.1 4.0 2.7 2.2 2.0 1.9
World GDP -5.0 4.4 3.3 3.0 2.8 2.7
World trade -11.6 7.1 5.0 3.9 4.0 3.8
Inflation indicators (% unless otherwise indicated)
US CPI 0.7 1.7 1.9 2.2 1.9 1.8
OECD CPI 1.0 1.7 2.0 2.1 2.0 2.1
Manufactures (measured in US$) -1.1 3.7 3.1 4.1 2.4 2.0
Oil (Brent; US$/b) 42.0 45.0 55.0 60.0 57.0 51.0
Non-oil commodities (measured in US$) 0.0 5.8 3.0 -4.8 1.9 1.0
Financial variables
US$ 3-month commercial paper rate (av; %) 0.6 0.1 0.2 0.6 1.0 1.5
Exchange rate RSD:US$ (av) 103.28 100.90 102.32 98.88 96.54 95.12
Exchange rate US$:€ (av) 1.14 1.17 1.15 1.19 1.21 1.23

Economic growth
The impact of the coronavirus: global and regional
assumptions
The Economist Intelligence Unit estimates that global output will contract by 5% this year (5.2%
in our previous forecasting round). This is the first upward revision to our 2020 global growth
estimate since the pandemic began early in the year. The upgrade is mostly a consequence of an
upward adjustment of our US and China forecasts, and small upward revisions to our projections
for OECD countries. The global economy will not recover to its pre-coronavirus size until at least
2022; 2020 and 2021 will be lost years for growth. Asian countries will recover the fastest, some as
early as 2021. Major economies will broadly recover in 2022 and emerging markets in 2023-24.
This scenario rests on the assumption that the worst of the pandemic will be felt this year, and
that people develop some immunity to the virus after infection. However, there will be no return to
normality until a safe and effective vaccine is rolled out, which we do not expect before the
second half of 2021. As a result, we expect persistent pandemic outbreaks and continued public
health restrictions in 2021, putting most countries under severe economic, fiscal and social strain.
Death ratios will depend on a country's ability to detect, track and contain the virus, and the
capacity of the national health system. The medium-term outlook for advanced economies is one
of slow growth, low inflation and high debt levels, as is already the case in Japan. Amid the
pandemic-fuelled debt pile-up, the outlook for emerging markets is gloomier. Many will have no
Country Report November 2020 www.eiu.com © Economist Intelligence Unit Limited 2020
Serbia 8
choice but to restructure debt in the medium term.
The euro zone economy recorded an unprecedented collapse in the first half of 2020, wiping out
all growth since the global financial crisis. Italy, Portugal, Spain and France were the worst-
affected countries; Germany and other northern economies recorded smaller contractions in real
GDP. The main factors determining the extent of the downturn were the severity of lockdowns and
dependence on services—especially foreign tourism. We expect a bounce­back from the third
quarter, but this will reflect base effects and the natural resumption of activity that followed the
continent-wide shutdown rather than the start of a vigorous recovery.
Case numbers are rising again at a worrying pace in both western and eastern Europe. This has
led to a tightening of local restrictions almost everywhere. France and Germany have announced
renewed nationwide lockdowns. In France, the lockdown will last until at least December 1st. In
Germany, it is in force initially for two weeks, from November 2nd. The hospitality sector has been
forced to shut down in many other European countries. This will weigh on consumer and
business sentiment, further hampering recovery. Against this backdrop, stalling growth in the
fourth quarter is becoming an increasingly distinct possibility. However, we continue to attach a
low probability to a double-dip recession in Europe. Growth rates will pick up in 2021, allowing a
partial recovery, but we forecast that GDP in western Europe will not return to its 2019 level until
late 2022.
The political and geopolitical effects of the crisis will be significant. The pandemic has resulted in
an extraordinary expansion of executive powers, with limited parliamentary oversight. It has also
become a testing time for central-local government relations, which have deteriorated in many
countries owing to conflicts over power-sharing, policy responses and financial support.
Elections have been cancelled or delayed in some countries, or have gone ahead in others in
controversial circumstances. Governments' handling of the response will continue to face
scrutiny. Public support for measures to combat the pandemic is fraying, and we expect social
unrest to rise in the coming months. Failure to address the social crisis triggered by the
coronavirus could further erode trust in national institutions. The crisis may encourage support
for the nation state, and a backlash against globalisation and open borders. It will also intensify
the competition for global leadership between China and the US, and a realignment of geopolitical
spheres of influence may ensue in Europe, Africa and other regions.

Economic growth
The economy had displayed robust momentum before the global coronavirus outbreak. Real GDP
rose by 4.2% in 2019, driven by higher public investment and household consumption. Headline
year-on-year growth was resilient in January-March 2020, supported by base effects, but a loss of
momentum was evident in quarterly terms, as lockdown measures took effect from mid-March.
Real GDP contracted by 6.4% year on year in the second quarter, and by 9% on a quarterly basis.
The slump mostly occurred in April; since then, activity has rebounded—led by retail sales and
public infrastructure investment—amid an easing of lockdown restrictions and the reopening of
most of the economy. Following an expected robust third-quarter bounce-back, output trends will
moderate over the coming months as pent-up demand diminishes and labour-market support
measures are phased out. A recent regional spike in coronavirus cases will also dampen
momentum. Parts of the manufacturing sector, such as the automotive and steel industries, and
non-retail consumer-focused services sectors, such as travel and hospitality, have been among
the worst-hit by the crisis. However, Serbia's economy is less exposed than those of some
regional peers to the disruption to global supply chains and tourism from the pandemic, amid
resilience in agriculture, production of basic goods and infrastructure construction (which has
risen strongly in recent years).
Near-term economic performance is strongly dependent on the development of the coronavirus
outbreak, both domestically and regionally. We expect an uneven recovery, given the likelihood
of irregular infection spikes that could prompt a tightening of restrictions and localised
lockdowns. Our estimate is for real GDP to decline by 1.5% in 2020, but there are risks to this
projection, given strong 2019 base effects and the risk of a second virus wave with the onset of
winter. A gradual firming of underlying trends in household consumption and investment activity
(alongside base effects) will support full-year growth of 4.5% in 2021. Even in this fairly benign
scenario, lagged effects of higher unemployment, weakened balance sheets, subdued global
demand and lower remittances will constrain growth prospects. We forecast average real GDP
Country Report November 2020 www.eiu.com © Economist Intelligence Unit Limited 2020
Serbia 9
growth of 2.5% per year in 2022-25. An important determinant will be the impact of the crisis on
future inflows of foreign capital (from Europe and China), which have been an important driver of
the improved economic performance in recent years.
Economic growth
% 2020a 2021b 2022b 2023b 2024b 2025b
GDP -1.5 4.5 2.0 2.7 2.6 2.7
Private consumption -3.0 4.5 2.0 2.5 2.3 2.8
Government consumption 9.0 2.0 2.7 1.6 1.5 1.5
Gross fixed investment -12.0 7.0 5.5 5.0 6.0 4.0
Exports of goods & services -5.0 4.0 7.0 7.5 6.0 8.0
Imports of goods & services -5.4 5.5 6.6 6.8 6.2 7.2
Domestic demand -2.1 5.3 2.3 2.8 3.1 2.8
Agriculture 1.0 1.0 1.0 1.0 1.0 2.0
Industry -4.0 4.8 3.5 3.5 3.5 4.5
Services 0.5 4.8 0.8 2.2 2.0 1.0
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

Inflation
Consumer price inflation has been modest and relatively stable in recent years, averaging about
2% per year in 2015­18 and 1.7% in 2019—at the lower end of the NBS's inflation target range. We
expect average inflation of 1.6% this year, amid weakened domestic demand, low global oil prices
and mild upward pressure from higher excise taxes and food-price base effects. We forecast a
gradual strengthening of aggregate demand and commodity prices in 2021, but expect price
pressures to remain anchored, with inflation averaging 2.3% per year in 2021-25.

Exchange rates
The dinar has appreciated moderately against the euro in recent years, owing in part to improved
domestic macroeconomic fundamentals, higher remittances, a more supportive financing
environment and strong foreign-currency inflows for investments. Policy easing by the NBS in
2019 was partly in response to upward pressure on the dinar from increased capital inflows.
Since April 2020 a cascade of policy initiatives by major central banks has eased tensions in
global currency markets. The NBS reacted quickly in bolstering dinar, dollar and euro liquidity via
swap and repo operations. Since April the dinar has fluctuated against the US dollar, but amid
regular NBS intervention in currency markets to contain depreciatory pressures, it has been
remarkably stable against the euro, trading close to RSD117.6:€1—near to its strongest level in
five years. We expect a similar year-end rate against the euro, and a continuation around this level
in 2021-22.

External sector
In 2019 the current-account deficit/GDP ratio rose to a seven-year high of 6.9%, from 4.9% in 2018,
owing mainly to a larger merchandise trade deficit. Foreign direct investment (FDI) inflows have
risen strongly in recent years and covered the current-account deficit in 2019. Foreign-exchange
reserves have also increased (despite regular NBS currency intervention) and are reasonably
strong. Exports, remittances, tourism earnings and capital inflows have fallen sharply this year,
but should rebound in 2021 as external conditions improve. The import bill has also declined amid
lower domestic demand and energy costs. We estimate a current-account deficit of 6.4% of GDP in
2020 and forecast an average annual deficit of 6.1% of GDP in 2021-25. This sizeable external
financing requirement implies that Serbia will remain vulnerable to a shift in investor sentiment and
a reversal in capital flows.

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Serbia 10

Forecast summary
Forecast summary
(% unless otherwise indicated)
2020a 2021b 2022b 2023b 2024b 2025b
Real GDP growth -1.5 4.5 2.0 2.7 2.6 2.7
Industrial production growth -4.0 4.8 2.3 3.4 3.0 4.0
Consumer price inflation (av) 1.6 2.1 2.6 2.4 2.4 2.2
Consumer price inflation (end-period) 1.8 2.2 3.0 2.8 2.2 2.2
Money-market interest rate (av) 1.0 1.1 1.6 2.2 2.7 2.8
General government balance (% of GDP) -8.0 -3.5 -2.4 -2.3 -2.6 -2.0
Exports of goods fob (US$ bn) 17.1 17.8 18.7 19.7 20.8 22.1
Imports of goods fob (US$ bn) -22.8 -24.0 -25.2 -26.6 -28.1 -29.9
Current-account balance (US$ bn) -3.4 -3.1 -3.4 -4.1 -4.4 -5.0
Current-account balance (% of GDP) -6.4 -5.4 -5.7 -6.4 -6.4 -6.8
External debt (year-end; US$ bn) 39.7 43.3 45.3 45.5 46.0 48.2
Exchange rate RSD:US$ (av) 103.3 100.9 102.3 98.9 96.5 95.1
Exchange rate RSD:US$ (end-period) 101.0 103.0 100.7 97.6 95.5 95.0
Exchange rate RSD:€ (av) 117.6 117.6 117.4 117.2 117.1 117.0
Exchange rate RSD:€ (end­period) 117.6 117.5 117.3 117.1 117.0 116.9
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

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Data and charts

Annual data and forecast
2016a 2017a 2018a 2019a 2020b 2021c 2022c
GDP
Nominal GDP (US$ m) 40,693 44,487 50,586 51,451 52,490 57,313 59,161
Nominal GDP (RSD bn) 4,528 4,761 5,073 5,418 5,421 5,783 6,053
Real GDP growth (%) 3.3 2.1 4.5 4.2 -1.5 4.5 2.0
Expenditure on GDP (% real change)
Private consumption 1.4 2.2 3.1 3.4 -3.0 4.5 2.0
Government consumption 2.5 3.7 3.9b 4.0b 9.0 2.0 2.7
Gross fixed investment 5.1 6.6 17.5 17.2 -12.0 7.0 5.5
Exports of goods & services 12.0 8.2 7.5 7.7 -5.0 4.0 7.0
Imports of goods & services 7.0 11.1 10.8 10.7 -5.4 5.5 6.6
Origin of GDP (% real change)
Agriculture 7.5 -11.4 15.1 -1.6 1.0 1.0 1.0
Industry 2.9 3.6 3.9 6.1 -4.0 4.8 3.5
Services 2.2 3.0 3.0 3.8 0.5 4.8 0.8
Population and income
Population (m) 7.1 7.0 7.0 6.9 6.9 6.9 6.9
GDP per head (US$ at PPP) 15,758 16,556 17,578 19,013 18,859 20,103 20,916
Recorded unemployment (av; %) 15.3 13.5 12.7 10.4 9.8 12.4 12.9
Fiscal indicators (% of GDP)
Public-sector revenue 40.7 41.5 41.5 42.1 39.5 41.0 40.9
Public-sector expenditure 41.9 40.4 40.9 42.3 47.5 44.5 43.3
Public-sector balance -1.2 1.1 0.6 -0.2 -8.0 -3.5 -2.4
Net public debt 67.8 57.9 53.7b 52.0b 61.0 62.0 61.1
Prices and financial indicators
Exchange rate RSD:US$ (end-period) 117.1 99.1 103.4 104.9 101.0 103.0 100.7
Exchange rate RSD:€ (end­period) 123.5 118.5 118.2 117.6 117.6 117.5 117.3
Consumer prices (av; %) 1.2 3.2 2.0 1.7 1.6 2.1 2.6
Producer prices (av; %) -0.4 3.2 2.2 0.6 -1.2 3.3 4.0
Stock of money M1 (% change) 20.5 10.2 18.3 14.0 18.0 2.0 11.0
Stock of money M3 (% change) 11.6 3.6 14.5 8.4 11.0 4.0 8.0
Money-market interest rate (av; %) 3.5 3.1 3.0 1.7 1.0 1.1 1.6
Current account (US$ m)
Trade balance -3,450 -4,534 -5,983 -6,281 -5,718 -6,175 -6,531
Goods: exports fob 14,180 15,905 17,830 18,387 17,100 17,784 18,673
Goods: imports fob -17,630 -20,438 -23,813 -24,668 -22,818 -23,959 -25,205
Services balance 1,003 1,098 1,170 1,171 1,123 1,106 1,149
Primary income balance -2,242 -2,871 -2,586 -2,773 -2,653 -2,132 -2,641
Secondary income balance 3,499 3,984 4,940 4,346 3,895 4,095 4,670
Current-account balance -1,190 -2,323 -2,459 -3,536 -3,354 -3,106 -3,353
External debt (US$ m)
Debt stock 29,533 34,279 34,223 35,896 39,732 43,306 45,340
Debt service paid 5,952 4,963 5,740 7,317 9,713 6,772 5,240
Principal repayments 5,032 4,086 4,813 6,385 8,420 5,370 4,070
International reserves (US$ m)
Total international reserves 10,757 11,906 12,875 14,995 15,800 15,650 16,300
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.
Sources: National Bank of Serbia; Statistical Office of the Republic of Serbia; World Bank, International Debt Statistics;
IMF, International Financial Statistics.

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Serbia 12

Quarterly data
2018 2019 2020
4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr
Central government finances (RSD bn)
Revenue 305.5 305.5 306.3 317.4 345.4 296.3 282.8 n/a
Expenditure 322.5 289.7 300.6 289.0 382.5 343.3 540.6 n/a
Balance -17.1 15.8 5.6 28.4 -37.1 -46.9 -257.8 n/a
Output
GDP at chained 2010 prices (RSD bn) 979.7 894.7 954.01,004.61,040.6 940.0 893.4 n/a
GDP (% change, year on year) 3.5 2.6 2.9 4.8 6.2 5.1 -6.4 n/a
Industrial production index (2017=100) 104.5 94.3 98.1 100.3 108.1 98.3 90.2 n/a
Mining & quarrying (2017=100) 107.9 96.9 94.8 103.4 109.6 104.2 92.5 n/a
Manufacturing (2017=100) 105.2 89.0 99.1 103.2 109.1 94.1 90.8 n/a
Electricity, gas & water supply (2017=100) 100.2 117.2 94.8 85.8 102.5 114.7 86.2 n/a
Employment, wages & prices
Employment ('000) 2,817 2,811 2,917 2,939 2,938 2,877 2,844 n/a
Unemployed ('000) 553 569 527 503 507 513 526 499
Average net wages, nominal (RSD per month) 70,376 74,134 75,320 74,995 78,744 81,815 81,841 n/a
Consumer prices (% change, year on year) 2.1 2.6 2.2 1.2 1.3 1.7 1.0 1.9
Sectoral trends
Retail trade turnover, current prices
135.1 119.5 138.1 143.6 152.5 133.1 134.3 n/a
(2015=100)
Retail trade turnover, constant prices
125.8 111.1 126.4 133.3 141.2 122.1 125.4 n/a
(2015=100)
Financial indicators
Exchange rate RSD:€ (end­period) 118.2 118.0 117.9 117.5 117.6 117.5 117.6 117.6
Exchange rate RSD:US$ (end-period) 103.4 105.0 103.8 107.4 104.9 106.7 104.6 100.2
Treasury-bill rate (end-period;%) 3.0 3.0 3.0 2.0 1.7 1.5 1.1 n/a
M1 (end-period; RSD bn) 792.3 736.5 773.5 827.8 903.6 932.31,115.91,124.7
M1 (% change, year on year) 18.3 16.4 15.5 19.3 14.0 26.6 44.3 35.9
M3 (end-period; RSD bn) 2,605.92,588.92,609.12,699.42,823.52,850.73,104.73,206.4
M3 (% change, year on year) 14.5 14.8 11.2 13.1 8.4 10.1 19.0 18.8
Foreign trade (US$ m)
Exports fob 4,739 4,659 5,039 4,901 5,011 4,656 3,937 n/a
Imports cif 6,822 6,315 6,670 6,513 7,225 6,591 5,205 n/a
Trade balance -2,083 -1,656 -1,631 -1,612 -2,214 -1,935 -1,268 n/a
Balance of payments (US$ m)
Current-account balance -613 -875 -740 -651 -1,281 -1,059 -408 n/a
Reserves excl gold (end-period) 12,033 11,991 12,848 13,525 13,496 12,842 13,888 n/a
Sources: Statistical Office of the Republic of Serbia; National Bank of Serbia, Statistical Bulletin.

Monthly data
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Exchange rate RSD:US$ (av)
2018 97.2 95.9 95.8 96.2 100.0 101.1 101.0 102.3 101.4 103.0 104.1 103.9
2019 103.6 104.1 104.4 104.9 105.5 104.5 104.9 105.8 106.8 106.4 106.3 105.8
2020 106.0 107.7 106.1 108.1 107.9 104.4 102.7 99.4 99.7 n/a n/a n/a
Exchange rate RSD:US$ (end-period)
2018 95.5 96.6 96.1 97.4 101.3 101.3 100.8 101.3 101.7 104.3 103.9 103.4
2019 103.0 103.9 105.0 105.4 106.0 103.8 105.5 106.6 107.4 105.3 106.8 104.9
2020 106.7 106.8 106.7 108.3 105.9 104.6 98.9 98.8 100.2 n/a n/a n/a
Exchange rate RSD:€ (end­period)
2018 118.7 118.1 118.3 118.2 118.2 118.1 118.1 118.3 118.4 118.3 118.3 118.2
2019 118.4 118.2 118.0 118.0 118.0 117.9 117.7 117.8 117.5 117.5 117.6 117.6
2020 117.6 117.5 117.5 117.6 117.6 117.6 117.6 117.6 117.6 n/a n/a n/a
Central budget revenue (RSD bn)
2018 86.6 90.5 89.6 91.1 87.9 121.2 110.5 93.4 102.9 99.7 100.3 105.4
2019 106.6 100.4 98.5 97.9 95.0 113.4 125.5 91.0 101.0 118.7 105.6 121.1
2020 110.1 94.7 91.6 83.5 76.0 123.3 131.5 97.7 n/a n/a n/a n/a
Central budget expenditure (RSD bn)
2018 64.5 94.1 101.7 91.0 85.6 99.0 92.3 105.7 90.5 87.9 94.0 140.6

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Serbia 13
2019 83.0 101.8 104.9 108.2 92.2 100.2 98.4 92.8 97.7 103.9 108.1 170.6
2020 97.9 107.4 137.9 150.5 198.5 191.6 150.5 118.6 n/a n/a n/a n/a
Central budget balance (RSD bn)
2018 22.1 -3.6 -12.1 0.1 2.2 22.1 18.2 -12.3 124.6 11.8 6.2 -35.2
2019 23.6 -1.4 -6.4 -10.3 2.8 13.2 27.1 -1.9 3.2 14.9 -2.5 -49.5
2020 12.1 -12.8 -46.3 -67.1 -122.4 -68.3 -19.0 -20.9 n/a n/a n/a n/a
M1 (end-period; % change, year on year)
2018 10.5 7.9 9.4 11.9 13.3 13.5 14.2 15.3 15.1 15.9 15.9 18.3
2019 16.2 15.7 16.4 15.1 12.8 15.5 15.2 17.8 19.3 18.1 17.2 14.0
2020 16.7 21.1 26.6 29.9 41.2 44.3 42.5 37.0 35.9 n/a n/a n/a
M3 (end-period; % change, year on year)
2018 3.9 3.5 3.3 4.7 6.2 7.9 8.4 8.9 8.2 9.5 8.4 14.5
2019 14.9 15.0 14.8 12.5 11.2 11.2 12.2 12.3 13.1 11.9 12.5 8.4
2020 8.2 9.0 10.1 13.8 17.6 19.0 17.6 17.0 18.8 n/a n/a n/a
Deposit rate (%)
2018 2.8 2.8 2.7 2.7 2.7 2.6 2.6 2.6 2.8 2.8 2.9 2.8
2019 3.0 2.7 2.8 2.8 2.8 2.7 2.5 2.3 2.1 2.0 2.0 2.0
2020 2.0 1.8 1.7 1.6 1.5 1.4 n/a n/a n/a n/a n/a n/a
Lending rate (%)
2018 8.8 9.0 9.2 8.8 8.7 8.7 8.8 8.7 8.3 8.6 8.2 7.7
2019 7.7 8.2 8.4 8.5 8.8 8.4 8.4 7.9 8.0 7.7 7.4 7.1
2020 6.3 7.0 6.4 4.6 5.3 5.5 n/a n/a n/a n/a n/a n/a
Consumer prices (av; % change, year on year)
2018 1.8 1.4 1.4 1.1 2.2 2.4 2.5 2.6 2.2 2.3 2.0 2.1
2019 2.1 2.4 2.8 3.1 2.2 1.5 1.6 1.3 1.1 1.0 1.5 1.9
2020 2.0 1.9 1.3 0.6 0.7 1.6 2.0 1.9 1.9 n/a n/a n/a
Producer prices ( av; % change, year on year)
2018 1.3 0.3 0.8 0.2 2.2 3.0 4.1 3.9 3.8 4.1 2.3 1.1
2019 0.9 2.0 2.0 2.3 1.4 0.6 -0.1 -0.3 -0.5 -1.1 -0.4 1.1
2020 1.6 0.6 -0.8 -3.0 -3.9 -2.6 -1.7 -1.8 -2.4 n/a n/a n/a
Average monthly nominal net wages (% change, year on year)
2018 4.9 -8.0 -0.2 -4.4 3.5 -4.1 2.7 5.1 -4.3 10.5 7.7 12.2
2019 12.7 17.1 15.4 17.0 14.4 10.1 16.4 10.6 16.2 13.5 6.3 14.4
2020 10.0 5.8 8.7 5.5 -1.8 9.7 3.4 0.8 n/a n/a n/a n/a
Goods exports fob (US$ m)
2018 1,401 1,508 1,796 1,609 1,676 1,745 1,639 1,495 1,624 1,705 1,648 1,386
2019 1,366 1,533 1,760 1,593 1,764 1,682 1,744 1,509 1,648 1,779 1,740 1,492
2020 1,493 1,628 1,535 1,097 1,273 1,567 1,678 1,544 n/a n/a n/a n/a
Goods imports cif (US$ m)
2018 1,804 2,014 2,420 2,162 2,162 2,199 2,159 2,054 2,088 2,458 2,222 2,142
2019 1,914 2,068 2,333 2,215 2,332 2,123 2,452 1,985 2,076 2,367 2,314 2,544
2020 2,011 2,234 2,346 1,541 1,651 2,013 2,251 2,075 n/a n/a n/a n/a
Trade balance fob-cif basis (US$ m)
2018 -403 -506 -624 -553 -486 -454 -520 -559 -464 -753 -574 -756
2019 -548 -535 -573 -622 -568 -441 -708 -476 -428 -588 -574 -1,052
2020 -518 -606 -811 -444 -378 -446 -573 -531 n/a n/a n/a n/a
Foreign-exchange reserves excl gold (US$ m)
2018 11,165 11,149 11,780 11,821 11,869 12,141 12,584 12,458 12,243 12,316 12,449 12,033
2019 12,183 12,094 11,991 11,825 12,099 12,848 13,263 13,428 13,525 13,591 13,396 13,496
2020 13,530 13,219 12,842 12,159 14,181 13,888 14,076 13,903 n/a n/a n/a n/a
Sources: IMF, International Financial Statistics; National Bank of Serbia; Haver Analytics.

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Annual trends charts

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Monthly trends charts

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Comparative economic indicators

Basic data
Total area
88,361 sq km (including Kosovo)

Population
7.1m (2011 census, excluding Kosovo); 9.2m (Economist Intelligence Unit 2019 estimate, including
Kosovo)

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Serbia 17

Main cities
Population in '000 (2011)
Belgrade (capital): 1,639 (a)
Novi Sad (b): 335 (a)
Nis: 258 (a)
Kragujevac: 178 (a)
Pristina (c) : 108
(a) Figures from the 2011 census in Serbia. (b) Capital of Vojvodina. (c) Capital of Kosovo. (This
figure is from the 1981 census; most Kosovo Albanians did not participate in the 1991 and 2002
censuses)

Climate
Continental

Weather in Belgrade (altitude 132 metres)

Hottest month, July, 17­28°C (average daily minimum and maximum); coldest month, January, ­3°C
(average); driest months, February and March, 46 mm average rainfall; wettest month, June, 96 mm
average rainfall

Languages
Serbian, Albanian (in Kosovo) and Hungarian (in Vojvodina)

Weights and measures

Metric system; a "wagon" of 10 tonnes is often used in trade figures

Currency
Serbian dinar (RSD) = 100 paras

Time
One hour ahead of GMT

Fiscal year
Calendar year

Public holidays
January 1st-2nd (New Year), January 7th (Orthodox Christmas), February 15th-17th (National
Day), April 17th-20th (Orthodox Easter), May 1st-2nd (Labour Day), November 11th (Armistice
Day)

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Serbia 18

Political structure
Official name
Republic of Serbia

Form of state
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Serbia 19
Democratic republic

Legal system
Based on the new Serbian constitution of November 10th 2006

National legislature
Unicameral: National Assembly (Narodna skupstina) of 250 seats

Elections
Most recent elections: April 2nd 2017 (presidential); June 21st 2020 (parliamentary);.
Next elections: April 2022 (presidential and parliamentary)

Head of state
President, Aleksandar Vucic, elected by universal suffrage

National government
Headed by the prime minister; responsible to parliament. The Serbian Progressive Party (SNS)
won 61% of the vote at the 2020 election and has 188 of the 250 seats in parliament

Main political parties

Serbian Progressive Party (SNS); Socialist Party of Serbia (SPS); Movement of Socialists (PS);
United Serbia (JS); Serbian Patriotic Alliance (SPAS); Democratic Party (DS); Democratic Party of
Serbia (DSS); Dveri; League of Social Democrats of Vojvodina (LSV); New Serbia (NS); Party of
United Pensioners of Serbia (PUPS); Serbian Radical Party (SRS); Serbian Renewal Movement
(SPO); Social Democratic Party of Serbia (SDPS); Alliance of Vojvodina Hungarians (VMSZ);
Serbian National Party (SNP)

Government
Prime minister: Ana Brnabic (SNS)
First deputy prime minister; minister of education, science & technology: Branko Ruzic (SPS)
Deputy prime minister; minister of energy & mining: Zorana Mihajlovic (SNS)
Deputy prime minister; minister of defence: Nebojsa Stefanovic (SNS)
Deputy prime minister; minister of culture & information: Maja Gojkovic (SNS)
Deputy prime minister; minister of agriculture, forestry & water management: Branislav Nedimovic
(SNS)
Construction, transport & infrastructure: Tomislav Momirovic (independent)
Economy: Andjelka Atanaskovic (SNS)
Environmental protection: Irena Vujovic (SNS)
European integration: Jadranka Joksimovic (SNS)
Family welfare & demography: Radomir Ratko Dmitrovic (independent)
Finance: Sinisa Mali (SNS)
Foreign affairs: Nikola Selakovic (SNS)
Health: Zlatibor Loncar (SNS)
Human & minority rights & social dialogue: Gordana Comic (independent)
Interior: Aleksandar Vulin (PS)
Justice: Maja Popovic (Ind)
Labour, employment, veteran & social affairs: Darija Kisic Tepavcevic (independent)

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Serbia 20
Public administration & local self-government: Marija Obradovic (SNS)
Rural welfare: Milan Krkobabic (PUPS)
Trade, tourism & telecommunications: Tatjana Matic (SDPS)
Youth & sport: Vanja Udovicic (SNS)

Parliamentary speaker
Ivica Dacic (SPS)

Central bank governor

Jorgovanka Tabakovic

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Serbia 21

Recent analysis
Generated on November 11th 2020

The following articles were published on our website in the period between our previous forecast and this one,
and serve here as a review of the developments that shaped our outlook.

Politics
Analysis
Parliament approves new government, with a short mandate
October 30, 2020
The prime minister, Ana Brnabic, who was nominated for a second term in early October,
unveiled her new cabinet on October 25th and parliament approved the new government on
October 28th, some four months after the June 21st parliamentary election. The delay in
forming the government reflects the difficulties that the ruling Serbian Progressive Party
(SNS) faces in legitimising its increasingly monopolistic grip on power.
Before the government was even formed, the president, Aleksandar Vucic, who also leads the
ruling SNS, announced that the party would have only a two-year mandate, as there would be a
pre-term election in April 2022. By holding the next parliamentary election at the same time as the
presidential election and the municipal election in Belgrade, the capital, the SNS hopes to
concentrate its resources and score a triple victory. By bringing forward the election, Mr Vucic
also wishes to address the issue of the new government's legitimacy: the SNS won more than 60%
of the vote and 188 of the 250 parliamentary seats in an election that the main opposition parties
boycotted on the grounds that it was neither free nor fair.
The new government is convened by Ms Brnabic, who was first appointed to the role of prime
minister in 2017 and re-appointed on October 5th 2020. As with previous SNS-led governments,
this one is also in partnership with the Socialist Party of Serbia (SPS)/United Serbia (JS), which
won just over 10% of the popular vote earlier this year. The SNS has a strong enough
parliamentary majority to rule alone, but a coalition with the SPS helps to burnish the legitimacy of
SNS rule by maintaining continuity with previous governments and drawing on a wider base of
parliamentary representation. The latter is important because the election was boycotted by a
wide range of opposition parties, including the largest opposition coalition, Alliance for Serbia
(SzS), which claimed that the elections were neither free nor fair.
The SPS leader, Ivica Dacic, a stalwart of Serbian politics for decades, was elected parliamentary
speaker on October 23rd and will no longer serve as foreign minister. That role will be filled by
Nikola Selakovic, a youthful SNS politician and lawyer who has served as minister of justice in
previous governments. Following the announcement of the US economic agreement between
Serbia and Kosovo in September, the appointment of Mr Selakovic indicates that Mr Vucic
intends to keep a tight grip over foreign policy. There is one ministerial role without portfolio for
the SPS that has yet to be filled.
Beyond the restoration of the SNS-SPS coalition, the most striking aspect of the new government
is that 11 of the new cabinet of 23 is comprised of women, including appointments to leading roles
such as ministers of energy, labour and mining, among others. This is on top of 20% of
250 parliamentary seats being occupied by women. With the appointment of the new cabinet,
Serbia has been propelled into the top ranks of governments around the world for gender equity.

Seeking alternative sources of legitimacy

The announcement of early elections and the shape of the new government exemplify Mr Vucic's
distinctive style of rule, which combines technocratic appeals to expertise, liberal centrism and
populist legitimisation. He explicitly cast the early election decision as part of his own personal
commitment to intensified public accountability, by denying himself and the new government the
benefit of a full four year term. A cabinet with gender parity, led by Serbia's openly gay and first-

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Serbia 22
ever woman premier, flaunts Mr Vucic's modernising credentials to the world, while also disarming
liberal opponents of his government at home and abroad. The aim is to project an alternative form
of representative legitimacy to offset his government's democratic deficit following the opposition
election boycott.
The decision to pre-annouce a snap election in 2022 indicates that Mr Vucic is still smarting from
the handling of elections this year. The contest was soured not only by the opposition boycott,
but also by violent protests that followed the government's attempt to reimpose a strict lockdown
in the wake of the election. Snap elections have become a familiar feature of SNS rule, keeping Mr
Vucic's party on an almost continuous campaign footing and the electorate in a quasi-permanent
state of mobilisation. Justified by the SNS commitment to accountability, it is also a policy that
disables a measured, calm evaluation of government policy, as citizens are constantly focused on
new electoral horizons. Despite the ornamentation of gender parity and claims of accountability,
the new government is likely to continue with the SNS policies of recent years, with a focus on
accession to the EU and maintaining close ties with China and Russia.

Economy
Analysis
Second coronavirus wave hits eastern Europe
October 23, 2020: Economic outlook
Eastern Europe is in the midst of a second coronavirus (Covid-19) wave, with new daily cases
rising to record highs. The cumulative number of cases over the preceding 14 days doubled to
nearly 132 per 100,000 people as of October 21st, compared with a month earlier, in the non-EU
countries in eastern Europe (including Turkey and Central Asia), according to the European
Centre for Disease Prevention and Control. This still compares favourably to the 347 registered
in Spain and 441 in France. However, as cases continue to spike, understaffed and underfinanced
healthcare systems will come under increasing strain. In contrast to second lockdowns across
much of the EU, governments in eastern Europe are resisting implementing stringent
restrictions given strong political and social opposition, as well as the high economic costs.

Coronavirus crisis: current situation

The western Balkans (Albania, Bosnia and Hercegovina, Montenegro, North Macedonia and
Serbia) are being hit particularly hard by the second wave, with more than 224 cumulative cases
per 100,000 people in the 14 days to October 21st. This is probably because of the region's
proximity to, and close trade and travel ties with, western Europe. Montenegro is the worst-
affected country in Europe in terms of 14-day cumulative cases (532 per 100,000) and deaths (64
per 100,000) and the authorities have been forced to reimpose localised mandatory curfews. In
Ukraine, cases have soared to more than 169 per 100,000—a new all­time high—and the Ministry
of Health has warned that the healthcare system is nearing full capacity. In Russia cases increased
to 133 per 100,000—also a new high and well above the 100 recorded at the peak of the crisis in
May. The central government remains opposed to new lockdown measures, but the authorities in
Moscow have mandated that all workers over the age of 65 and those with chronic health
conditions work remotely. Turkey has recorded just 29 cumulative cases per 100,000 as of October
21st. Even so, the Turkish authorities have introduced localised quarantines, and residents over
the age of 65 must stay indoors at night. In Central Asia (Kazakhstan, the Kyrgyz Republic,
Tajikistan and Uzbekistan) cumulative cases over the past 14 days have averaged 32.

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Governments are not testing enough

Testing capacity in eastern Europe continues to be generally poor, with Russia being the
exception—the country was conducting three daily tests per 1,000 people as of October 20th, just
behind the UK and France, according to Our World in Data. The share of positive coronavirus
results in Russia has risen to 3%, from less than 2% a month earlier, but remains well below the
5.8% at the peak of the crisis in mid-May. Turkey conducts 1.36 daily tests per 1,000 people and
Kazakhstan less than one, although the share of positive test results is low at 1.5% and has been
stable so far. Serbia performs only 0.85 daily tests per 1,000 people, and positive coronavirus tests
have surged to 3.3% of the total, from less than 1% a month earlier. Alarmingly, Ukraine conducts
the least tests (less than 0.7 per 1,000), despite recording a record number of new daily cases, and
the share of positive coronavirus tests is high at 20%, more than doubling from end-September.
This means that the actual number of cases is probably far higher than the official tally suggests.

Counting the cases: methodological differences matter

Methodological differences in reporting new coronavirus cases and deaths complicate country-
to-country comparisons in the region. Reporting changes in Turkey, for instance, have led to
asymptomatic cases not being counted. This goes against the World Health Organisation (WHO)
official guidance that any person who tests positive for the virus, "irrespective of clinical signs
and symptoms", counts as a confirmed case. The authorities in Russia are using a much narrower
classification than the WHO when counting coronavirus-related deaths. This partly explains the
far lower fatality rate of 1.7%, compared with the UK's 5.9% and Italy's 8.7%, as of October 20th,
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Serbia 24
despite Russia being the fourth-worst affected country globally in terms of total cases.
Keeping the official coronavirus case and death tally low is driven by economic and political
motives. Turkey's lower infection rates have kept the country on the safe-travel-corridor list,
including the UK's (although it was taken off in early October). Turkey is highly dependent on
tourism—which brought in about US$35bn in foreign­currency earnings in 2019—but the sector
has collapsed this year, with international visitors down by nearly 90% year on year in March-
August. The low official death rate in Russia has been used by the authorities to claim the
superiority of the country's healthcare system and led most coronavirus restrictions to be lifted
earlier than elsewhere in Europe. In Serbia the government has corrected errors in its reporting
system having been accused earlier this year of under-reporting coronavirus cases and deaths in
the run-up to the parliamentary election on June 21st.
A similar trend can be observed in authoritarian regimes in Central Asia and the South Caucasus,
where governments exercise strict control over the flow of information, and data deficiencies are
common. Azerbaijan's 14-day cases per 100,000 people as of October 21st remain low at just 49,
compared with more democratic neighbours—Armenia (460) and Georgia (265). The same applies
to the death rate; Armenia's is nearly ten times higher than Azerbaijan's. In Kazakhstan, the
Kyrgyz Republic, Tajikistan and Uzbekistan, the reported number of new cases and deaths is far
lower than anywhere else in the region, while Turkmenistan has not reported any positive
coronavirus cases at all. As a result, only limited coronavirus-related restrictions are in place.

Risks to economic and political stability are rising

Governments' handling of the coronavirus crisis has led to mounting public distrust in the
policymakers. Belarus and the Kyrgyz Republic are in a full-blown political crisis, partly because
of out-of-touch leaders and inefficient institutions, underpinned by ineffective policy responses
to the crisis. Protests have also emerged in other parts of the region, including Kazakhstan, Russia
and the western Balkans. Although these protests are relatively small in size and not directly
related to the coronavirus outbreak, they highlight the public's frustration with social restrictions
and the financial costs of the crisis.

The second coronavirus wave also risks a further deterioration in economic stability. The region is
enduring its worst recession in over a decade and a worsening health situation will have an
adverse effect on the recovery. High-frequency indicators, including retail sales, industrial
production and electricity consumption, started to point towards a V-shaped recovery in the third
quarter. Loose monetary and large fiscal stimulus packages spared most countries from even
larger economic contractions, than we had previously expected. Given the likelihood that further
public health restrictions will be introduced (including border closures and travel restrictions) in
the fourth quarter, additional financial support will be necessary to keep households and firms
afloat. However, tax breaks and limited employment support schemes have largely expired and
many tools available to the authorities have been exhausted.

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Serbia 25

Kazakhstan was forced to increase its 9% of GDP fiscal stimulus, following a second lockdown in
July-August, and has started to deplete its sovereign wealth fund, which consists of strategic
reserve assets intended to diversify Kazakhstan's oil-dependent economy. Russia has announced
fiscal consolidation plans, entailing a 10% overall budget cut starting next year, following an
estimated 4.3% of GDP deficit this year. We estimate that Russia's public debt ratio will have
increased by two-thirds, to nearly 20% this year, which would be the highest in 17 years. Turkey's
credit-led stimulus programme has created large external imbalance and risks triggering a balance-
of-payments crisis. The government and central bank have been forced to significantly tighten
policy, which bodes ill for any additional support to households and businesses. The more
vulnerable and weaker economies, including parts of the western Balkans, Central Asia and
Ukraine, which do not have sufficient fiscal space of their own, may be forced to turn to the IMF
for a second time this year to withstand a second economic shock.

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