Serbia Needs Fiscal Prudence, Own Resources to Grow, EBRD Says

Serbia needs fiscal tightening to ensure macroeconomic stability and it must rely on its own resources rather than cheap credit for growth, the European Bank for Reconstruction and Development said.

The economy is expected to emerge from recession in 2013 after contracting this year on weak harvest and dwindling export demand and “the overriding priority for 2013 is restoring fiscal prudence,” Peter Sanfey, the London-based lender’s lead economist, told reporters in Belgrade today.

“The pre-crisis growth model is not going to come back,” Sanfey said. “Serbia is not going to get back to rapid growth by having massive inflow of cheap capital and cheap credits from abroad. It will have to rely more on own resources.”

The Cabinet of Prime Minister Ivica Dacic, in office since July, hopes that its plan for broad fiscal consolidation, seen by the International Monetary Fund as overly ambitious, will show results as early as next year, boosting investor sentiment and leading to a balanced budget by 2016.

The government plans to cut the budget gap to 3.6 percent of gross domestic product next year from 6.7 percent in 2012 and will rely on export growth for a 2 percent economic expansion.

Investments in energy, especially renewables, still offer good potential in Serbia and in the region, if the governments show “less interference in the sector” and help improve investor confidence, Sanfey said.

To contact the reporters on this story: Misha Savic in Belgrade at gfilipovic@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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