March 15 (SeeNews) - Moody's Investors Service said on Thursday it expects Serbia's economic growth to accelerate to 3.0% in 2018 and 3.5% in 2019, supported by private consumption, as private sector employment expands.
The Serbian economy's growth structure is now more balanced than before the financial crisis, having seen a strong shift towards export-driven growth in recent years, Moody's said in a new annual report on the country.
The country's low fiscal strength captures a general government debt level at an estimated 62.4% of GDP as of 2017 that remains higher than the median of Ba-rated peers. However, Moody's expects that Serbia's improved fiscal out-turns and healthy economic growth will help to gradually narrow the difference in the coming years, although debt will continue to exceed the Ba-rated median.
Serbia's credit profile benefits from its diversified economy, institutional reforms and stronger fiscal metrics, but still faces a number of constraints, including its significant contingent liabilities, obstacles to further structural reform and the large share of general government debt denominated in foreign currency, Moody's said in a new annual report on the country, Moody's said.
"The Serbian government's significant fiscal efforts, with IMF support, have led to a turnaround in the general government fiscal balance," Moody's Vice President Evan Wohlmann said. "We expect the implementation of further structural reforms and the improved fiscal outlook will lead to a gradual downward trend in the debt burden to levels closer in line with its rating peers."
Ongoing reforms to the large state-owned enterprise (SOE) sector will help reduce fiscal risks in the future. Nevertheless, significant contingent liabilities, particularly from the SOE sector, remain a constraint on the sovereign credit profile. Moreover, the government's debt-servicing costs are vulnerable to exchange-rate fluctuations, as a significant portion of total government debt is denominated in foreign currencies, Moody's said.
Progress on structural reforms that leads to a notable improvement in the country's economic and fiscal metrics, resulting in a faster than expected reduction in the public debt burden closer to the median of similarly rated peers, would generate upward pressure on Serbia's sovereign rating.
Downward pressure on Serbia's issuer rating could arise if a reduced commitment by policymakers to the reform agenda, particularly in relation to addressing budget risks from the SOE sector, leads to a markedly weaker growth outlook and a deterioration in fiscal metrics, the ratings agency noted.
In March 2017, Moody's upgraded Serbia's long-term issuer and senior unsecured ratings to Ba3 from B1 and moved their outlook to "stable" from "positive". The key drivers of the upgrade in Serbia's senior unsecured and long-term issuer ratings are the country's notable fiscal consolidation which has halted the increase in debt burden and reduces risks to the fiscal position.