BELGRADE (Serbia), October 29 (SeeNews) – The World Bank said it had to shelve its plans to finance renewable energy and education projects in Serbia’s this year in favour of urgent backing of the country’s 2009 and 2010 budgets and infrastructure plans, aiming to help the Balkan economy weather the crisis.
“There were some projects that were in the pipeline. There was renewable energy and an education project. Maybe we could have done that a little bit sooner,” the head of the World Bank Office for Serbia, Simon Gray, told SeeNews in an interview last week without elaborating on the amount of the planned loan.
“We didn’t get to that stage yet,” he said. The World Bank’s lending envelope is $900 million (598.6 million euro) between July, 2007 and June, 2011. Half of the entire amount will be disbursed towards budget support while the remainder will be used to fund the construction of European Union-defined transport Corridor X.
“And then, on the infrastructure side, originally they wanted to improve the competitiveness and the integration with the rest of Europe. So they wanted Corridor X, but then they also wanted to try and accelerate as much as possible Corridor X because when you don’t have sources of growth, such as exports, during the crisis you want to invest in public works as an alternative so and using concession funding like ours to try and create jobs,” Gray said.
ECONOMIC GROWTH
The World Bank also projected that Serbia’s economy, backed by a 3.0 billion euro funding arrangement with the International Monetary Fund (IMF), will start picking up towards the end of 2010, Gray said. The government in Belgrade, on the other hand, expects to exit the economic crisis in the first quarter of next year at the latest, Economy Minister Mladjan Dinkic said earlier this month.
“Our prognosis going forward is a bit more conservative. Basically, we are looking at a pick up towards the end of the year,” Gray said.
“You will see next year a growth in economy overall for the whole year but what we are saying is that growth will only start towards the latter part of the year. Remember that growth is on the figure of 2009, so it will not take immediately back to where we were before,” Gray said, adding that the World Bank agrees with the latest IMF forecast that Serbia’s economy will grow by 1.5% in 2010.
Serbia’s central bank, NBS, estimates that the country's economy contracted by a real 2.7% in the third quarter of 2009, year-on-year, after shrinking by 4.1% in the first half of 2009. GDP slowed its rise to a real 5.4% in 2008 from 6.9% in 2007.
“We can see a slowdown in the downturn, but to be perfectly honest with you this is a real moving target. I think that the IMF and the World Bank are the first to recognise that this is not an exact science and that we have to revise targets and projections on a regular basis. But this is our latest,” he added.
PUBLIC SECTOR
While the government in Belgrade reacted well amidst the crisis, dealing with immediate issues such as freezing wages and pensions, Gray says the measures are not sustainable in the long term.
“You cannot keep wages frozen and have an efficient public sector for more than two years or so. Because, you are not going to attract the right people into the sector,” he explained.
In its report on Serbia’s public spending released last month, the World Bank said pensions account for the biggest chunk of the country’s public outlays at around one-third.
“We are working intensively with the government. Pensions is a huge area, it’s the largest single expense. They need to make sure that the pension system is financially sustainable going forward but also that it produces the right benefits for people in the long term. At the moment it is not financially sustainable,” he said.
“So there are various elements that need to be corrected there: early retirement, equivalent ages for men or women, longer term vision is to make sure it’s properly indexed. So people working should have in the longer term their pensions indexed to their wages and when they retire they should these indexed to inflation so you have consumptions moving. But what happened in Serbia is that it isn’t, it wasn’t like that,” Gray explained.
Serbia is under pressure to restructure its public sector in order to qualify for 1.4 billion euro in combined second and third tranches from the IMF stand-by loan facility. An IMF mission is in Belgrade to review the country’s economic performance, on which the disbursement of the tranches hinges. Belgrade adopted its first law allowing for cuts in public administration earlier this month. Last Thursday it adopted a law on slashing staffing levels in local administrations. The move paves the way for between 5,700 and 37,800 in layoffs, local media reported.
RED TAPE WEIGHS
Serbia needs to step up efforts to cut red tape in order to make its private sector more efficient, Gray said.
“Our survey has shown that, yes, Serbia has made good progress on starting up a business regulation – it has become much quicker. But there are other areas Serbia has done extremely badly. In terms of construction permits it ranked 174 out of 183. I mean, the amount of time that is spent on getting construction permit is ridiculous,” Gray said.
“And then there’s one thing where Serbia has gotten worse actually since last year – in terms of paying taxes, it ranked 137. Sixty-six payments of taxes are needed a year, while the average is 12.8.
“The hours of time that are spent paying taxes – 279 hours and the average is 194. Then, how long it takes to go through bankruptcy, which makes you wonder, well, what does this have to do with an investor but if you have old companies that aren’t performing well and can’t exit the system and they don’t have the efficiency to do that, then it does not make for a competitive existing system. Closing a business it ranked 102,” Gray said.
($=0.6787 euro)