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FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT APRIL 2011
BELGRADE STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Political Developments
Previous year brought some degree of
political stability although the on-going
international economic crisis is bringing many
challenges. The broad coalition that forms the
current Government over the past year
handled a number of serious political issues.
Advancing European integration is a stated
priority of the Serbian Government, and major
progress has been made after the signing of
a Stabilization and Association Agreement
(SAA) in May 2008. Serbia signed and ratified
the SAA with the EU, and in December 2009
officially submitted application for full
membership. In November 2010 a
questionnaire with the comprehensive list of
questions aimed at explaining the country’s
capacity to apply and enforce EU legislation
was handed-over to Sebia. Ahead of
ratification of the SAA by EU member states,
Serbia decided to implement the part of the
agreement related to liberalization of trade.
Nevertheless, the political situation and the
EU accession process in Serbia remain
influenced by recent history related to full
cooperation with the International Criminal
Tribunal for the former Yugoslavia and
Kosovo’s independence. Serbia’s strong
administrative capacity may allow quick
progress towards candidacy status once
political issues are resolved. Serbia is also
pursuing membership in the World Trade
Organization. Negotiation on accession to
WTO are in the final phase.
Accelerating structural reform shall remain
critical to rebalancing the Serbian economy. In
particular, efforts in deregulation and the
restructuring of public utilities should be
stepped up. The multiparty coalition
government, led by the Democratic Party
(DS), could face mounting protests against its
austerity measures.
Economic Developments
Macroeconomic stability has been broadly
maintained although the economy has been
hit by global downturn. The export-led
economic recovery has gained momentum,
but external risks remain significant. GDP
growth is picking up on the back of a
competitive exchange rate and rebounding
industrial output and exports. Growth in 2010
wasl projected at 1½ and 3 percent in 2011.
However, foreign financing risks remain
elevated in the context of a still large trade
deficit and subdued capital inflows. There are
also still significant risks from fresh adverse
spillovers from the region and from euro-area
periphery developments.
The continued depreciation of the dinar is
putting pressure on corporate balance sheets,
but banks remain well buffered. The dinar has
further depreciated since the Greek crisis,
diverging from other flexible currencies in the
region, negatively affecting unhedged
corporate balance sheets. Serbia’s banking
system is liquid and well-provisioned against
credit risks but continued vigilance is needed.
Inflation has surprised on the upside, reemerging
as a key policy concern. Inflation
was consistently below the NBS’ tolerance
band during the first half of 2010. However,
since August 2010, inflation has accelerated
sharply, reaching 8.9 percent in October,
above the NBS tolerance band of 6.3±2
percent. This occurred despite the continued
dampening effect of slow nominal wage costs
growth, owing to a depressed labor market
and the public wage freeze. The NBS has
hiked the policy rate by 250 basis points since
August, and has signaled a continued
tightening bias, with the objective of bringing
inflation within its tolerance band by end-
2011.
In November, the government adopted a 2010
supplementary budget aiming at a fiscal
deficit consistent with the program target. The
2011 budget will target a deficit of about 4
percent of GDP, in line with the new fiscal
responsibility framework. Achieving this target
will require tight control of current spending,
including moderating the indexation of public
wages and pensions, as well as constraining
capital spending. With government financing
becoming more difficult, as evidenced by
undersubscribed dinar T-bill auctions in spite
of higher yields, Telekom privatization
proceeds will likely be needed to cover a
major part of the financing needs. Maintaining
an economic policy consensus will be one of
the most difficult challenges facing
policymakers.
The government amended the pension reform
law. It introduced two changes aimed at
strengthening protection for the most
vulnerable and women. The Serbian pension
system will remain one of the most expensive
systems in the region, and further reforms are
likely unavoidable.
FDI and other inflows to enterprises have
come in significantly lower than expected,
reflecting Serbia’s relatively high country-risk
premium and banks’ concerns about
unhedged corporate balance sheets,
particularly in the nontradable sectors, which
absorbed most of the pre-crisis capital
inflows.
(source: IMF, WB)
Information obtained from the Exchange.
Key Information Contacts
National Bank of Serbia: www.nbs.rs
Securities and Exchange Commission: www.sec.gov.rs
Central Securities Depository and Clearing House: www.crhov.rs
Ministry of Economy and Regional Development: www.merr.gov.rs
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