Fiscal policy Serbia had serious shortcomings during the crisis caused by the coronavirus pandemic, and that now puts the country in a more uncertain situation before the new crisis, the President of the Fiscal Council Pavle Petrovic pointed out today.
He said at the Kopaonik Business Forum that during the pandemic in 2020 and 2021, Serbia spent 55 percent more funds than the countries of Central and Eastern Europe (CEE), indiscriminately distributing aid primarily to citizens, but also to the economy.
According to Petrovic, crises come more often than expected, and as Serbia managed to ensure a low budget deficit and public debt before the corona virus pandemic, it could respond adequately to the crisis, but fiscal policy had serious shortcomings during the health crisis. .
“The response to the crisis was excessive and economically unjustified in terms of spending funds, and that now puts us in a more uncertain situation before the new crisis. We spent 55 percent more funds to help citizens and the economy than CEE countries,” Petrovic said in his introductory remarks. presentation “Fiscal risks of Serbia at the beginning of a new global uncertainty”.
He added that the money was distributed indiscriminately to citizens and the economy, and at the same time a new crisis is being entered into with unreformed public companies, and that relevant public companies from the energy sector are relevant to the upcoming crisis. , necessarily a larger gas storage, from 2011 until today, only the first phase of the construction of the Banatski Dvor has been completed, and at the end of 2021 this was followed by an operational problem because the Banatski Dvor was insufficiently filled and reached the heating season.
According to him, the state provides Srbijagas with the difference between high purchase and frozen sales prices of gas, and the drop in production in EPS is the main culprit of emptying that warehouse because by December 2021 it had withdrawn almost a third more gas than usual.
He pointed out that there are numerous structural problems in EPS: no real reforms, low investments, there is a surplus of employees, and their structure is unfavorable, poor control of wages, connection with losers, losses and theft of electricity, low price, public procurement …
According to him, poor management of EPS led to the escalation of the problem at the end of 2021, when the production of electricity in thermal power plants is the lowest in the last ten years.
“The decline in electricity production was compensated by imports at record prices due to the energy crisis, so from October 2021 to March 2022, 500-600 million euros are needed to purchase electricity. It was financed by EPS with loans of over 300 million euros, and it is uncertain whether in the end, something will fall on the budget “, said Petrović.
He pointed out that “a comprehensive structural reform of EPS, which has been delayed for eight years, is needed, and not cosmetic changes such as corporatization on paper, status changes, inventory of assets.”
According to him, during the health crisis in 2020 and 2021, Serbia spent 3.7 percentage points of gross domestic product (GDP), almost twice as much for health care as CEE countries, which is justified on the one hand, but on the other hand shows that Serbia entered the crisis with insufficient capacities, which is the result of many years of low investment in health capacities, and that there were problems with staff and salaries.
He said that in Europe about 4.2 percent of GDP was given to help citizens and the economy, and in Serbia similarly, about 4.8 percent, but that there is a significant difference because Serbia gave almost 95 percent of funds indiscriminately, and in CEE this indiscriminate share was below 30 percent.
The biggest non-selectivity, as he said, was reflected in payments to citizens, in 2020 and 2021 as much as 1.4 billion euros of non-selective aid was given, and if we add what is planned to be paid in 2022, it will be almost two billion euros.
According to him, due to non-selective payment, the public debt has increased by as much as six billion euros since the end of 2019, and it could have been reduced by at least a third.
“Money was indiscriminately distributed to citizens (from borrowing) instead of only the endangered in accordance with the initiated reform of social policy and social cards,” said Petrovic.
He added that the reforms were postponed and that the public companies Srbijagas and EPS were extremely poorly managed, which unnecessarily increased the vulnerability of the domestic economy at the moment when new crises start, the war in Ukraine, high and growing global inflation and energy crisis.
According to him, in 2020 and 2021, the CEE countries gave on average four times less to help citizens and the economy than Serbia, and they mainly directed their aid to the most endangered categories of the population.
“At the end of 2019, the general government debt was 24.4 billion euros, and at the end of 2021, 30.5 billion euros, which is a growth of 25 percent in just two years. The increase in debt of six billion euros is primarily due to anti-crisis measures of about five billion euros in 2020 and 2021, “Petrovic said.
He added that the aid measures were more rational if the aid could have been reduced by two to 2.5 billion euros.
He pointed out that the share of debt in GDP did not increase as much, it increased from 52.8 to 57.1 percent because it was mitigated by real GDP growth, cumulatively 6.5 percent in 2020 and 2021, but also relatively strong, real appreciation of the dinar.
“If the dinar had depreciated as the currencies of other CEE countries, the public debt would have been around 60 percent of GDP,” Petrovic said, adding that relying on a de facto fixed exchange rate was dangerous.
He said that the war in Ukraine could increase the pressure on the dinar exchange rate and that Serbia has a large external imbalance, because the current balance of payments deficit is much higher than in CEE, in 2021 it was 4.4 percent of GDP compared to 1 , 8 percent.
According to him, the strong inflow of foreign direct investments has kept the dinar so far, and large foreign exchange reserves can defend the exchange rate, but the increase in debt in the previous two years has unnecessarily limited the available economic policy mechanisms in the new crisis.
He assessed that high inflation is a serious social problem, year-on-year price growth was 8.2 percent, and in January 0.8 percent, which is about ten percent without the usual adjustment of excise duties, and during the frozen price of some basic products.
“Food and energy prices have risen the most, for which the poorest spend most of their income, and for them inflation is already above 10 percent, and it will probably be even higher,” said Petrovic.
According to him, fiscal policy should have an effect on curbing inflation, ie current public spending should be reduced, and the most endangered citizens should be helped.