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Serbia Facing the Challenges of Sustainable Growth

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Author:
Biljana Jovanović Gavrilović
Professor at the Faculty of Economics, University of Belgrade

Biljana Jovanović Gavrilović

 

When it comes to economic transition, Serbia can be regarded a sui generis state. Reforms in our country began with a ten-year delay, during which the initial advantages, that we were endowed with, in comparison to other post-socialist economies, completely disappeared. Moreover, the benefits of late entry into a transition and learning from the experience of others were also squandered, which ultimately reflected on the achieved results.

 

Institutional reforms in the country started slowly and unconvincingly, so the gap that was separating Serbia from the standards of functioning market economies remained large. After the outbreak of the global recession, the reform process here, as in many other states in transition almost stopped, although without a pronounced tendency to reverse.

 

The growth performance of the Serbian economy differed before and after the beginning of the global economic crisis in 2008. This recession is considered to be the natural border between a period of seemingly successful development and one of economic downturn. Both time intervals, however, represent an organic whole, and prove that the bill for economic mistakes and failures will always arrive, regardless of delays. Before the outbreak of the global financial depression, we saw a relatively dynamic, although unstable growth in Serbia’s GDP. Nevertheless, this was not sufficient to compensate for the decline in economic activity in the nineties. Yet, the unsatisfactory quality of actual production increase remains the key issue. Not only was the growth developed at the cost of the future (because lacking funds were compensated for by increasing foreign debt), but also at the expense of the past (because the used substance was produced in the previous periods). 

 

In the upcoming years, Serbia has to act simultaneously on two fronts: promoting market reforms and reducing the gap that separates it from the developed market economies, as well as affirming and implementing new development models, which would be sustainable in the economic, social and environmental aspects. The attention should be paid to both - the economic base of growth (more effective use of production factors; changes in the industrial structure in accordance to the requirements of continuous advancement) and to its contribution to the welfare of the people (distribution of benefits between various social groups and regions; impact of economic progress on the environment).

 

The liberty of designing and applying reforms in Serbia is obviously narrowed. However, it does not differ much from the abilities of other EU accessing countries with similar economic power. In implementing systemic reforms and conducting economic policy in today´s simultaneously globalized and regionalized world, we have to take into account supra-national (as well as sub-national) aims and goals. Still, it is important that the Government stays the pivotal point for creation and execution of new, innovative policies and serve as the unyielding guardian of vital national interests.  

 

It seems that there is now a strong political will for economic change in Serbia. That change is largely coerced by the difficult economic situation in the country and strengthened by raised expectations of a large part of the population. Social constraints of the reforms are very pronounced, and that fact should be kept in mind when defining reformative measures and evaluating their effects. In the case of reformative measures it is necessary to ensure a fair distribution of the impending responsibility generated by the change. When it comes to evaluating their effects, the objective is the allocation of gains deriving from it, given that all reforms failing to benefit the majority of the population, cannot enjoy prolonged public support.  

 

Despite the evident loss of confidence in growth strategies within Serbia (because they usually remained just “a dead letter”), the country needs a new strategic development framework, through which the urgent and ongoing problems could be solved. Looking the acute crisis in public finances, the special importance should be attached to cutting of expenses in the public sector. The truth is that the public sector is cumbersome, expensive and inefficient, and that it needs critical reforms. Still, they would have to be well thought out and selectively implemented in the country’s best long-term interest. The key to solving the problems of public finances in the long run, lies not in austerity measures, (which at times could be counter-productive), but instead in investment and economic growth.

 

Achieving a dynamic and sustainable economic growth as well as development in our country requires a corresponding change in the structure of the economy. Emphasis should be placed on the development of the real sector, especially on the manufacturing industry that has widely diversified relationships and effects throughout the economy, which over the past two decades has seriously deteriorated. During a particular period in the past, the topic of re-industrialization was eagerly debated in our scientific and professional community. As for the re-industrialization, it is important to note that the EU, which is slowly getting out of the longest recession in its history, is seriously considering this question. Experts advocate the renaissance of the European industry, which would then assume the main role in the recovery and competitiveness of the European economy. Without a doubt, revitalization of the industry should also be one of the primary concerns of the creators of our development strategies and policies. It is important to note that the industry is not necessarily synonymous with "factory chimneys", but rather with modern production, based on research and development, which would take into account the environmental criteria.

 

Sustainable development presupposes an increase in production on a sound economic basis, with a responsible attitude towards the environment and fulfilment of the social justice criteria. There is no doubt that this is an attractive concept, but its application in practice is a challenge for everybody, and Serbia is not an exception.

 

Biljana Jovanović Gavrilović

Professor at the Faculty of Economics, University of Belgrade

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