ANNUAL REPORT JUNE 2010
FEDERATION OF EURO-ASIAN STOCK EXCHANGES
BELGRADE STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Economic and Political Environment
The government–led by For a European
Serbia (ZES), an alliance dominated by the
pro-EU DS of the president, Boris Tadic–is
expected to come under increasing strain as
the need for harsher austerity measures to
meet budget deficit targets in 2010-11
generates internal dissension and public
protest. Pressure on the coalition will also
increase as tensions over other issues–such
as the greatly modified version of the
Vojvodina Statute, giving a large degree of
autonomy to Vojvodina province–come to a
head. The government has the support of six
deputies representing minorities, giving it a
slim parliamentary majority, with 128 out of
250 seats. Fear of an early election in which
they could lose ground to the opposition will
push the government parties towards
agreement, however.
The government is committed to EU
integration, but progress has been
disappointing, prompting Serbia to pursue a
multipolar foreign policy that focuses on
Russia, China, the US, the Non-Aligned
Movement (NAM) and neighbouring countries,
as well as on the EU. There has been a
breakthrough in one area, however, with the
European Commission recommending the
lifting, by the end of 2009, of visa restrictions
on Serbian citizens travelling in the Schengen
area.
Economic Performance
The main policy challenge facing the
government is how to handle the
consequences for Serbia of the global
financial and economic crisis. The crisis has
had a far-reaching impact on the country,
putting the dinar under pressure, causing
output to contract, and making access to
external finance more difficult and expensive.
The government negotiated a stand-by
agreement with the IMF in March, securing a
EUR3bn (US$4bn) loan to support the
balance of payments. The agreement allowed
a larger than planned budget deficit, equal to
3% of GDP, but committed the authorities to
significant fiscal tightening, including
substantial cuts in public expenditure.
Because of a substantial revenue shortfall and
above-target current spending, the budget
deficit target set in March has become
unattainable. The IMF agreed to increase the
2009 deficit target to 4.5% of GDP and the
2010 target to 3.5% in talks during a second
review of the stand-by arrangement in late
August. The government has proposed the
reform of the public administration, entailing
job losses and spending cuts, but the
measures may be insufficient. The IMF argues
that the problem could be resolved through
an increase in the rate of value-added tax
(VAT) from 18% to at least 19%. Resistance
within the government to increasing taxes may
be wearing thin, given the lack of options
available to it and continuing IMF pressure.
and assuming further improvement in the final
quarter, there is some upside risk attached to
our estimate for 2009. After a feeble recovery
in 2010, growth is forecast to rebound to 4%
in 2011. There is a considerable downside risk
to our baseline forecast, given the danger of
further reversals once the upturn gets under
way and the possibility that the recovery will
not be sustained.
Year-on-year retail price inflation remained
stuck at 9.5% year on year in September, but
consumer price inflation slowed to 7.3%.
A good harvest, the decline in prices of
agricultural products and recession-induced
falls in the prices of most commodities are
expected to bring about a series of positive
supply shocks. Additionally, the abrupt
economic slowdown and fiscal tightening will
depress real incomes, easing demand
pressures.
The dinar has stabilised since the signing of
the IMF agreement in March. Nevertheless,
given the sharp decline in the value of the
currency before this, and continuing
depreciation, a correction in the exchange
rate occurred in 2009, with the dinar
depreciating to an estimated RSD93.4:EUR1
and to RSD63.1:US$1 at end-2009. This
implies an average real effective depreciation
against a trade-weighted basket of currencies
of about 5.7% in 2009. A modest nominal
depreciation is expected against the euro in
2010-11 and a fairly stable real effective
exchange rate (REER).*
A weak recovery in growth is expected, of 1%,
in 2010, following an estimated contraction in
real GDP of 4% in 2009. Real GDP declined
by 4.1% year on year in the first half of 2009
and by an estimated 2.7% in the third quarter,
* The Economist Intelligence Unit Limited, November 2009
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.sr.gov.yu
REAL GDP
(RSD millions)
CONSUMER PRICES (% CHANGE PA; AV)
(%)
1.4 18
1.2 16
1.0
14
0.8
12
0.6
10
0.4
8
0.2
0.0
6
2005
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