Feature
We’re Weakened As We Enter A Year Of Uncertainty DANKO BRČEREVIĆ
CHIEF ECONOMIST OF THE FISCAL COUNCIL OF THE REPUBLIC OF SERBIA
Despite being exhausted significantly by the health crisis, fiscal policy will have to play an important role, and perhaps a key role, in mitigating the impact of new economic disruptions. If the payment of aid to Serbia’s imperilled economy and population during covid-19 had been done using similar criteria to those deployed in other CEE countries, Serbia’s anti-crisis package would have cost as much as two billion euros less than it did. This large funding, which was so easily spent, would now be a very welcome addition to the budget for the uncertain year that is 2022
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he war in Ukraine, alongside the pre-existing energy crisis and high inflation, will significantly worsen macroeconomic trends across the whole of Europe, Serbia included. Although Ukraine and Russia together account for only around two per cent of the world’s GDP, they have disproportionately larger global significance for the markets of energy, cereals and industrially important rare metals (palladium, nickel). That’s why the economic consequences of this conflict will be felt globally. The OECD’s preliminary forecasts indicate that the war in Ukraine could result in the growth of the world economy slowing by about one per cent, the European economy by about 1.5% (with the expectation of deep recessions for Ukraine and Russia). Of course,
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all forecasts remain extremely uncertain and will depend on the further development of the situation in Ukraine, which is currently impossible to predict with certainty. If the war (and sanctions) continues, there will be more lasting economic disruptions, leading to these initial OECD forecasts proving to be overly optimistic. Serbia, ultimately like other European countries, is facing new instability with macroeconomic indicators that are somewhat weakened compared to the beginning of the health crisis back in 2020. Public finances have been largely exhausted over the past two years – because budget funds were utilised to finance increased healthcare costs and lavish measures to support businesses and the population. As a result of this extraordi-
nary expenditure, public debt increased by as much as six billion euros between year’s end 2019 and year’s end 2021 (from 24.4 to 30.5 billion euros). Inflation has also accelerated strongly since mid-2021, in relative terms, reaching 8.8% annually in February 2022. Despite being exhausted significantly by the health crisis, fiscal policy will have to play an important role, and perhaps a key role, in mitigating the impact of new economic disruptions – especially given that monetary policy is currently hampered by high inflation. We’ve already seen the adopting of some ad-hoc fiscal measures, such as reducing excise duties on petroleum products, while it has been decided that funds from the budget will cover Srbijagas losses incurred due to the difference between the high price
