Bloated public sector hinders productivity
Overview:
The Serbian economy is returning to growth although the recovery is weak and unbalanced. The fiscal deficit is likely to outperform its target this year. The IMF program remains on track and the level of FX reserves is more than adequate. Nevertheless, significant economic challenges remain. The current account deficit and inflation both fell sharply during the economic crisis but are now starting to increase once more. While the latter is already being addressed by higher policy interest rates the former requires not only the maintenance of a competitive exchange rate but the implementation of structural reforms. The government has a mixed record here. It must do more to reduce bureaucracy, shift the burden of taxation away from labour to consumption and reduce the size of the massive and inefficient public sector.