Serbia’s GDP growth is key to reducing public debt

GDP growth is key to reducing public debt, the National Bank of Serbia (NBS) said in its February Inflation Report.
“Favorable financing conditions, along with a strong recovery in economic activity in Serbia and gradual fiscal adjustment, will be key factors in stabilizing and then reducing the share of public debt in gross domestic product,” the NBS said.
All economic indicators, and above all the share of public debt in GDP, remained within sustainable limits in 2020, despite a comprehensive package of economic support, the report said, adding that it was crucial to maintain favorable prospects for stable economic growth in medium term.
The central bank reminds that the adoption of a comprehensive package of economic assistance, with increased costs of health care, affected the temporary increase of the fiscal deficit at the consolidated level in 2020 to 8.0 percent of GDP, and the growth of public debt to 57,7 percent of GDP.
“However, thanks to the better realization of revenues than expected, a more favorable result was achieved than the estimates of the Ministry of Finance given in the Fiscal Strategy for 2021 with projections for 2022 and 2023,” the NBS notes.
They consider the continuation of the growth of capital expenditures of the state to be especially important, because it contributes to the accelerated realization of infrastructure projects and the growth of production potential.
“One of the biggest challenges for economic policy makers at the moment is finding the optimal measure between short-term support for human health and the economy, on the one hand, and ensuring medium-term sustainability of public finances, on the other,” said NBS Governor Jorgovanka Tabakovic.
She emphasizes in this context that it is important to carefully assess the fiscal space and its optimal use in order to avoid premature tightening of fiscal policy in the later period.
“In that light, we look at another recently announced package of economic support to the economy and the population, which will enable an even faster recovery of the Serbian economy.”
The report also states that the NBS, through a series of measures, from easing monetary policy, through a moratorium on loan repayment to providing cheap dinar liquidity to banks, enabled the continuation of credit activity growth and economic recovery from the pandemic crisis.
It is specified that in 2020, credit activity increased by almost 10 percent, which is the third consecutive year of growth.
In addition, it is added that the domestic labor market avoided the severe consequences of the crisis thanks to timely and significant economic support, which was aimed at providing the necessary liquidity to companies and preserving production capacity and jobs, while the employment rate was maintained at pre-crisis level, B92 reports.