Download - FEAS

FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT APRIL 2007
BELGRADE STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Economic and Political Environment
Serbia is going to hold an early parliamentary
election at the beginning of 2007, after voters
approved a new constitution in a referendum
held on October 28th-29th. Preliminary results
from the Republic Electoral Commission
indicate that the constitution was supported
by 52.3% of registered voters, surpassing the
legal minimum of 50%. This reflected the
strong backing for the document among all
the main parties, and the fact that voting took
place over two days. Despite the importance
of the issue, turnout was relatively low, at
about 54% of all registered voters–a function
of widespread public disillusionment with
politics, as well as the limited public debate
on the constitution.
In early May 2006 the EU called off the latest
round of stabilization and association
agreement (SAA) talks with Serbia and
Montenegro (as it then was), after Serbia
failed to hand over the former Bosnian Serb
military commander, Ratko Mladic, by the
EU's April 30th deadline. The EU left open
the possibility of a quick resumption of
negotiations if Serbia were seen to be
co-operating fully with the ICTY, and it reacted
positively to the action plan that the Serbian
government issued in July 2006. This positive
reaction fuelled speculation that the EU might
try to give Serbia's reformist government a
boost by restarting SAA talks even if
Mr. Mladic had not been handed over,
provided that Serbia took some concrete
steps to find him.
Macroeconomic concerns persist in Serbia,
despite the maintenance of generally prudent
policies since the completion of a three-year
IMF arrangement earlier in 2006. The present
government has not sought a new IMF
agreement. This is partly because Serbia has
little immediate need for further external
financing, since it has high levels of foreignexchange
reserves and received record
foreign direct investment (FDI) inflows in 2006.
Serbia's hesitation concerning a new IMF deal
may also reflect differences of opinion
between the government and the Fund over
the pace of structural reforms and on how to
privatize large state-owned enterprises (SOEs)
such as the oil and gas company, Naftna
Industrija Srbije (NIS). The IMF has also
expressed concern that Serbia's National
Investment Plan (NIP), which will channel
privatization proceeds into infrastructure
investment, could threaten macroeconomic
stability.
Economic Performance
Real GDP grew by a stronger than expected
6.7% year on year in the first half of 2006,
driven by a vigorous manufacturing recovery
and continued rapid expansion of trade,
financial services, transport and
communications. Growth will decelerate, but
remain strong, in 2007-08. Leading drivers will
include investment in newly privatized
companies; relatively robust consumer
demand, boosted by the continued growth of
real wages and the expansion of commercial
bank lending; and an increase in public
investment.
Inflationary pressures have declined much
more sharply than expected in recent months,
owing to the appreciation of the dinar, lower
international oil prices and a slowdown in new
bank lending. Year-end consumer price
inflation is expected to be at 7.5%, from 10%
previously. On the assumption that economic
policy remains generally prudent, it is
expected that the deflationary trend will
continue, with price growth falling to 7% by
end-2008.
The appreciation of the dinar against the euro
and US dollar since mid-2006 has rekindled
the debate as to whether Serbia's exchangerate
policy should be used to control inflation
or to maintain competitiveness. The Ministry
of Economy has said that the stronger
dinar is endangering Serbia's external
competitiveness. The National Bank of Serbia
(NBS, the national bank) and the Ministry of
Finance, by contrast, are largely comfortable
with the nominal appreciation of the currency,
since this reduces inflationary pressures and
contains external debt-servicing costs.
Nevertheless, the NBS governor, Radovan
Jelasic, has suggested that there are limits as
to how far the NBS would let the dinar
appreciate.*
* The Economic Intelligence Unit Ltd., October 2006
Key Information Contacts
National Bank of Serbia: www.nbs.yu/english/index.htm
Securities and Exchange Commission: www.sec.sr.gov.yu
Central Securities Depository and Clearing House: www.crhov.co.yu/indexe.htm
Ministry of Economy: www.mpriv.sr.gov.yu
2004-ORIGINS OF GROSS DOMESTIC PRODUCT (%) (a)
2004-COMPONENTS OF SOCIAL PRODUCT (%) (ab)
Services
Industry
Agriculture
Private consumption Public consumption Gross fixed investment
Increase in stocks Exports of goods & services Imports of goods & services
55.6
16.8
80
79.2
60
40
20
20.5
14.2
13.8
27.6
0
-20
-0.6
-40
-27.0
PAGE 56