Serbia

Politics:

• Analysis

  Serbia politics: Quick View - Merkel says "nein" to opening accession negot

  Event

  In a setback to Serbia's hopes of receiving a date to start EU membership talks, the German chancellor, Angela Merkel, has said that now is not the time to start accession negotiations with any country.

  Analysis

  Presenting a government declaration to the Bundestag (the lower house of parliament), Ms Merkel said that Croatia would probably become an EU member in mid-2013, but that it was not the right time to open accession talks with other candidate countries. This followed the December 14th meeting of EU heads of state and government in Brussels, which adopted the foreign ministers' conclusions on enlargement, including the decision to recommend the possibility of opening talks with Serbia in the first half of 2013. Despite attempts by Serbia's deputy prime minister for European integration, Suzana Grubjesic, to shrug off the chancellor's statement, the government's chances of receiving a date to start EU accession negotiations in the first half of 2013 are zero if Germany does not approve.

  This is a bitter blow to the government. Despite fears that it would pursue a more nationalist course compared with its Democratic Party (DS)-led predecessor, the current government-comprising the Serbian Progressive Party (SNS), the Socialist Party of Serbia (SPS), the United Regions of Serbia (URS) and independents-has eaten humble pie by implementing agreements on Kosovo reached by the DS government. It has engaged in the EU-sponsored Serbia-Kosovo talks at a higher level, with face-to-face talks between the respective prime ministers, Ivica Dacic and Hashim Thaci. It has also continued to be accommodating towards EU demands, despite the recent shock decisions by the International Criminal Tribunal for former Yugoslavia (ICTY) in The Hague to acquit and release former Croatian and Kosovo military commanders accused of war crimes against Serbs, decisions that generated outrage among the population in Serbia.

  In March 2013 the European Commission is expected to make a recommendation on opening accession talks with Serbia, dependent on "progress towards a visible and sustainable improvement of relations with Kosovo" (a process often referred to as a "normalisation" of relations). Beyond the stipulation that Serbia implement in good faith all agreements reached to date with Kosovo and engage in further talks "on the full range of issues", there is a lack of clarity about what is meant by a "normalisation" of relations and about how far that process must go before Serbia is allowed to start accession negotiations. This deliberate vagueness means that Serbia could be denied a date to open accession talks indefinitely.

  December 17, 2012

• Background

  Serbia: Key figures

  Tomislav Nikolic

  Mr Nikolic's victory in the May 2012 presidential election, in a second-round run-off with the incumbent, Boris Tadic, was unexpected, as pre-election opinion polls showed a substantial lead for Mr Tadic. Above all, the victory of Mr Nikolic-a former extreme nationalist turned Europhile, and a lacklustre candidate with little distinctive to offer-was the result of a popular protest vote, attesting to the deep-seated dissatisfaction of the population with Serbia's difficult economic and social situation. In winning the presidency at his fifth attempt, Mr Nikolic has shaken off the tag of "perennial loser". After his election, he immediately resigned as president of the Serbian Progressive Party (SNS), the party he formed after the split with the ultra-nationalist Serbian Radical Party (SRS) in September 2008. He is unlikely to wield power in the manner of his predecessor, who over two terms turned the formerly ceremonial position into the main locus of power in Serbia.

  Ivica Dacic

  With his Socialist Party of Serbia (SPS) emerging as kingmaker after its improved performance in the May 2012 parliamentary election, Mr Dacic was in a prime position to fulfil his ambition of becoming prime minister, ditching his old allies in the Democratic Party (DS) to win the coveted post by going into coalition with the SNS. A decade ago, after the overthrow of Slobodan Milosevic, the party's founder, the SPS looked dead and buried. However, the SPS has survived and prospered under Mr Dacic, the leader of its modernising reformist wing. In 2012 it doubled the vote it received in the December 2003 polls (7.3%). Mr Dacic has proved an adept political operator and is likely to continue to lead his party.

  Aleksandar Vucic

  The acting chair of the SNS, Aleksandar Vucic, is first deputy prime minister, defence minister, anti-corruption official responsible for tackling organised crime, and secretary of the National Security Council. He was secretary-general in the SRS, before he joined the SNS, and was a former information minister in the SPS-SRS government of Mirko Marjanovic in the late 1990s, when he notoriously presided over an information law that introduced heavy financial penalties for journalists and media organisations which were considered to be critical of the government. Provided that he has a successful stint in government, Mr Vucic is a likely successor to Mr Nikolic as leader of the Progressives.

  Mladjan Dinkic

  Mr Dinkic, leader of the United Regions of Serbia (URS) and a former finance minister and governor of the National Bank of Serbia (NBS, the central bank), has returned to government as finance and economy minister. He has cemented his leadership of both the G17 Plus, a think-tank that transformed itself into a political party, after a power-struggle with its former leader, Miroljub Labus, and of the URS, which he created in 2010 as a vehicle to further his electoral ambitions. It promotes decentralisation and localism and appeals to ingrained resentment in central and southern Serbia of the capital, Belgrade. Mr Dinkic had difficult relations with members of the former governing coalition-notably, with Mr Tadic and EU minister Bozidar Djelic-and was open to joining a coalition with the SNS as long as the SPS was playing a leading role.

  Boris Tadic

  Mr Tadic, the DS leader, was defeated by Mr Nikolic in the run-off for the presidency in May 2012. Defeat at the ballot box has emboldened party rivals such as Dragan Djilas, deputy party leader and mayor of Belgrade. Mr Djilas launched his bid for the leadership with a barbed attack on Mr Tadic, claiming that there had been no reckoning with those responsible for the electoral defeat. Having been re-elected comfortably to the mayoralty of Belgrade, Mr Djilas has credibility at both the ballot box and within the party. His political power is supported by his personal fortune, having business interests in a number of influential media groups. Mr Djilas hopes to pressure Mr Tadic into resigning so that he can stand unopposed for the leadership at the party congress later this year. Whatever transpires, Mr Tadic's leadership is weaker and his rivals bolder than ever. Having been in government for his whole time as party leader until now, Mr Tadic will find the internal party environment much less hospitable to him in opposition than it was in power.

  September 19, 2012

• Structure

  Serbia: Political structure

  Official name

  Republic of Serbia

  Form of state

  Democratic republic

  Legal system

  Based on the new Serbian constitution of November 10th 2006

  National legislature

  Unicameral: Assembly (Skupstina) of 250 seats

  Elections

  May 6th 2012 (parliamentary); next parliamentary election May 2016. May 6th and 20th 2012 (presidential); next presidential election May 2017

  Head of state

  President, elected by universal suffrage. Tomislav Nikolic was elected president on May 20th 2012 and was sworn in on May 31st in parliament

  National government

  Headed by the prime minister and responsible to parliament. The coalition led by Ivica Dacic of the SPS, which took office on July 27th 2012, comprises the SNS, the SPS, the URS and some independents

  Main political parties

  Democratic Party (DS); Democratic Party of Serbia (DSS); G17 Plus; Liberal Democratic Party (LDP); New Serbia (NS); Serbian Progressive Party (SNS); Serbian Radical Party (SRS); a bloc comprising the Socialist Party of Serbia (SPS), the Party of United Pensioners of Serbia (PUPS) and United Serbia (JS); United Regions of Serbia (URS)

  Key ministers

  Prime minister & interior minister: Ivica Dacic (SPS)

  First deputy prime minister & defence minister: Aleksandar Vucic (SNS)

  Deputy prime minister & minister of labour & social policy: Jovan Krkobabic (PUPS)

  Deputy prime minister & minister for European integration: Suzana Grubjesic (G17 Plus)

  Deputy prime minister & minister for trade & telecommunications: Rasim Ljajic (SDPS) (a)

  Deputy prime minister & minister for regional development & local government: Verica Kalanovic (G17 Plus)

  Agriculture, trade, forestry & water management: Goran Knezevic (SNS)

  Construction: Velimir Ilic (NS)

  Culture, media & information: Bratislav Petkovic (SNS)

  Education & science: Zarko Obradovic (SPS)

  Energy: Zorana Mihajlovic (SNS)

  Finance & economy: Mladjan Dinkic (G17 Plus)

  Foreign affairs: Ivan Mrkic (independent)

  Health: Slavica Djukic-Dejanovic (SPS)

  Justice: Nikola Selakovic (SNS)

  Mining: Milan Bacevic (SNS)

  Transport: Milutin Mrkonjic (SPS)

  Without portfolio: Sulejman Ugljanin (SDAS) (b)

  Youth & sport: Alisa Maric (independent)

  Parliamentary speaker

  Slavica Djukic-Dejanovic (SPS)

  Central bank governor

  Jorgovanka Tabakovic

  (a) Mr Ljajic is the leader of the Social Democratic Party of Serbia. (b) Mr Ugljanin is the leader of the Party of Democratic Action of Sandzak.

  December 01, 2012

• Outlook

  Serbia: Key developments

  Outlook for 2013-17

  • The victory in the parliamentary and presidential elections in May 2012 of the Serbian Progressive Party (SNS) and its leader, Tomislav Nikolic, has led to a realignment of politics.
  • The acquittal of two former Croatian generals by the appeal court of The Hague war crimes tribunal will have far-reaching negative repercussions for Serbia and the region.
  • The government faces tough economic policy challenges, particularly the need to consolidate state finances and reduce public debt.
  • The government is expected to negotiate a new stand-by agreement with the IMF for 2013-15, to reassure international markets and foreign investors.
  • Public dissatisfaction is expected to grow, given the forecast recession, high levels of unemployment and accelerating inflation in 2012, and there is a risk of social unrest.
  • Serbia may have a long delay before it is invited to begin EU membership negotiations, which will last beyond the forecast period.
  • The Economist Intelligence Unit estimates that real GDP will contract by 1.5% in 2012 as the euro zone slides into recession. We expect growth to average 3.6% per year in 2013-17.

  Review

  • On November 4th Boris Tadic, the previous president, announced that he would not stand again for office in the Democratic Party (DS).
  • A new survey shows that support for EU membership has fallen below 50%, and opposition grew by 10 percentage points between June and September.
  • A recent sharp increase in the number of asylum seekers from Serbia has led to demands from some EU countries for the reintroduction of visas for Serbian citizens.
  • On October 9th the National Bank of Serbia (NBS, the central bank) raised its benchmark two-week repo rate by 25 basis points, to 10.75%, in response to rising inflationary pressures.
  • On November 8th the NBS raised its benchmark two-week repo rate by 20 basis points, to 10.95%, contrary to the rate-cutting trend elsewhere.
  • Accession to the World Trade Organisation (WTO) is expected in early 2013, but there is a significant risk of further slippage.
  • The government extended the submission deadline for the tender for the state-owned Smederevo steelworks until December 26th.

  December 01, 2012

Economy:

• Background

  Serbia: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	7.3b	Population growth	-0.4
  GDP (US$ m; market exchange rate)	44,214	Real GDP growth	1.6
  GDP (US$ m; purchasing power parity)	81,518b	Real domestic demand growth	1.0
  GDP per head (US$; market exchange rate)	6,076	Inflation	12.5
  GDP per head (US$; purchasing power parity)	11,203	Current-account balance (% of GDP)	-13.3
  Exchange rate RSD:US$ (av)	72.46b	FDI inflows (% of GDP)	6.0
  a Economist Intelligence Unit estimates. b Actual.

  Download the numbers in Excel

  Background: For almost a century Serbia was a part of various South Slavic states, including the Kingdom of Serbs, Croats and Slovenes in 1918-41 (renamed the Kingdom of Yugoslavia in 1929), the Socialist Federal Republic of Yugoslavia in 1945-92, the Federal Republic of Yugoslavia in 1992-2003, and the State Union of Serbia and Montenegro in 2003-06. After Montenegro voted to leave the state union, Serbia officially proclaimed its independence on June 5th 2006.

  Political structure: Serbia is a multiparty democracy. The national legislature is a unicameral parliament (Skupstina), which has 250 seats. The president is elected by popular suffrage, but has little formal power. The legal system is based on the Serbian constitution of 2006. Serbia has two autonomous provinces, Vojvodina in the north and Kosovo in the south; following the NATO bombing of 1999, Kosovo was made a UN protectorate. On February 17th 2008 the province's ethnic Albanians declared Kosovo's independence and sought international recognition. Serbia considers the independence proclamation null and void under the UN charter and the Serbian constitution.

  Policy issues: Serbia still lags behind in the transition to a market economy. Reasons for this include a succession of crises after the break-up of Yugoslavia in 1991 (which also severed established economic links), the imposition of international sanctions, and the damage to industry and infrastructure caused by the 11-week air bombardment by NATO in 1999. Macroeconomic policy, structural reforms and privatisation improved dramatically under the government of Zoran Djindjic in 2001-03, but slowed in 2004-06 under the coalition government led by the Democratic Party of Serbia (DSS), and reforms were subsequently delayed by frequent national elections and the onset of the global crisis in 2008. An IMF agreement in 2009-11 helped to insulate Serbia from the damaging effects of the crisis and kick-started long-delayed reform of the public sector. A new agreement in 2012-13 should encourage further public-sector and structural reforms.

  Taxation: Serbia offers a generally favourable tax regime for businesses, including incentives for new investors and multi-year tax holidays. The corporate tax rate of 10% is among the lowest in Europe (Montenegro is one of the few countries with a lower rate, of 9%). Payroll and sales taxes were replaced by a value-added tax (VAT) in January 2005. The rate of personal income tax was reduced from 14% to 12% at the start of 2007.

  Foreign trade: The current-account de ficit underwent a sharp narrowing in 2009-10, reaching US$3.1bn in 2010, compared with US$10.7bn in 2008. However, the deficit widened to US$4.1bn in 2011, equivalent to an estimated 9.3% of GDP.

  Major exports 2011	% of total	Major imports 2011	% of total
  Manufactured goods	29.6	Machinery, apparatus & transport articles	22.9
  Food	20.1	Mineral fuels & lubricants	19.7
  Machinery, apparatus & transport articles	16.7	Manufactured goods	19.1
  Chemical products	8.5	Chemical products	14.7
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  Bosnia & Hercegovina	11.2	Germany	10.9
  Italy	9.2	Italy	8.7
  Germany	8.9	Hungary	8.3
  Russia	6.8	Slovenia	5.9

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  December 01, 2012

• Structure

  Serbia: Economic structure

  Data and charts: Annual trends charts

  
  

  

  December 01, 2012

• Outlook

  Serbia: Country outlook

  Serbia: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The government that took power on July 27th 2012 is led by Ivica Dacic, the prime minister, interior minister and leader of the Socialist Party of Serbia (SPS). It comprises the Serbian Progressive Party (SNS), the SPS, United Regions of Serbia (URS) and some independents. As the SPS and the URS were part of the governing coalition led by the Democratic Party (DS) in 2008-12, the most important change is that the SNS--once part of the ultra-nationalist Serbian Radical Party (SRS)--replaces the DS as the main political force. Its former leader, Tomislav Nikolic, won the presidency, defeating Boris Tadic, the DS incumbent. The SNS's new leader, Aleksandar Vucic, has been given multiple posts in the government, concentrating a significant amount of power in his hands and ensuring that the SNS has a counterweight to the power of the prime minister.

  ELECTION WATCH: The next parliamentary election is due by May 2016 and the next presidential election is due by May 2017. The government may experience a decline in popularity in the coming months. However, it may be some time before the DS rehabilitates itself with the electorate. In November 2012 Mr Tadic announced that he would not stand again for office in the DS, ending a protracted and bitter dispute within the DS. The path is now clear for Dragan Djilas, the mayor of Belgrade and Mr Tadic's rival, to assume the leadership at the party congress on November 25th. It is unclear how the change in the DS will play with the electorate. Mr Djilas is popular in Belgrade, but his personal wealth and media empire may harden popular suspicions that the DS continues to be corrupted by its association with shady tycoons. The Economist Intelligence Unit expects the government to remain in office in the short term, but an early election cannot be ruled out later in the forecast period if social and economic conditions deteriorate significantly.

  INTERNATIONAL RELATIONS: On November 16th the appeals chamber of the International Criminal Tribunal for former Yugoslavia (ICTY) in The Hague acquitted Ante Gotovina and Mladen Markac, Croatian ex-generals, of war crimes in Operation Storm. In 2011 the ICTY sentenced the two men to lengthy jail terms for their role in what it described as a "joint criminal enterprise" devised by the late Croatian president Franjo Tudjman and senior Croat commanders to "permanently remove" Serbs from Croatia. In the US-supported operation in 1995, the Croatian army drove more than 200,000 Serbs out of Krajina, killing hundreds in the process. According to Croatian sources, more than 1,000 of the elderly Serbs who remained in Krajina after Operation Storm were subsequently killed.

  POLICY TRENDS: Reform momentum has slowed in recent years, and we do not expect a significant acceleration under the new government. Nevertheless, the implementation of the EU stabilisation and association agreement (SAA), which is nearing full ratification by EU members, should act as a spur for further reform, as should EU candidate status, and an expected new IMF programme in 2013-15.

  ECONOMIC GROWTH: The recovery from the recession of 2009, when GDP fell by 3.5%, has been lacklustre. Real GDP grew by 1% in 2010 and 1.6% in 2011, and the economy has slipped back into recession in 2012. According to the Republican Statistical Office's flash estimate, real GDP contracted by 2.2% year on year in the third quarter, bringing the fall to an estimated 1.8% in the first three quarters. Serbia is heading for an annual contraction in excess of 1%. In line with third-quarter data, we have revised down our estimate for 2012, to a real GDP contraction of 1.5% (previously 1.4%).

  INFLATION: Inflation decelerated in early 2012, to 2.7% year on year in April, driven down by base effects and sluggish domestic demand. Inflation picked up in subsequent months. In August and September it rose by 1.6% and 2.3% month on month, respectively, bringing the year-on-year rate to 7.9% in August and 10.3% in September. The acceleration is being driven by a food price shock as a result of drought-affected harvests in Serbia and globally, a post-election rise in administered prices, the ending of an administrative cap on trade margins, rising import prices, and the base effect of lower inflation from mid-2011. We have retained our estimate for end-2012 inflation of 11.2% and average inflation of 6.9%. Assuming that fiscal policies remain prudent, we expect gradual disinflation over the forecast period, with inflation declining to around 3.2% by 2017. However, inflation is expected to remain above the target band of the National Bank of Serbia (NBS, the central bank) throughout much of 2013.

  EXCHANGE RATES: The dinar rallied against the euro over the past month, appreciating by 1.1% between October 19th and November 19th, to RSD112.4:EUR1, but depreciated by 1.5% against the US dollar, to RSD88.3:US$1. However, despite the recent nominal appreciation, on November 19th the dinar was down by 8.5% year on year against the euro and by 13.2% against the US dollar, driven down by euro zone troubles and domestic political uncertainties. The dinar is likely to remain subject to turbulence in 2013, reflecting nervousness in financial markets caused by the sovereign debt crises in Greece and the wider euro zone, and by concerns about fiscal policy developments in Serbia. After weakening significantly in 2012, the dinar is forecast to strengthen modestly in real effective terms in 2013-17. This compares with a large cumulative depreciation in 2008-12. Later in the forecast period concern about the movement of the dinar will shift as liberalisation of the capital account leads to greater speculative inflows and exchange-rate volatility.

  EXTERNAL SECTOR: The current-account deficit, which reached nearly 23% of GDP in 2008, was a crucial weakness of the macroeconomic environment before the crisis of 2008-09, stemming from excessive domestic demand and the low competitiveness of exports. After contracting sharply in 2009-10, the current-account deficit expanded in 2011, reaching 9.3% of GDP. Slowing growth in the EU means a less favourable outlook for export growth in 2012. In January-August exports fell by 8.3% and imports fell by 4% in US dollar terms. In euro terms, exports increased by 1.1%, but imports rose by 5.6%. As a result, the trade deficit grew by 2.8%, to US$5.14bn. We estimate a current-account deficit in double digits as a share of GDP in 2012. Although domestic demand is forecast to remain moderate in the coming years, the current-account deficit is still forecast to average a sizeable 7.9% of GDP in 2013-17.

  December 01, 2012

• Forecast

  Serbia: Country forecast summary

  Country forecast overview: Highlights

  • A new government was formed following the parliamentary election in May 2012, which the opposition Serbian Progressive Party (SNS) narrowly won. Ivica Dacic is the prime minister. The coalition comprises his Socialist Party of Serbia (SPS), the SNS, Mladjan Dinkic's United Regions of Serbia (URS), several independents and minority parties. The government has a comfortable parliamentary majority and is expected to remain in power for its four-year term.
  • Tomislav Nikolic's victory in the presidential election, at his fifth attempt, has allowed him to escape the tag of "perennial loser", but he is unlikely to wield power in the manner of his predecessor, Boris Tadic, who over two terms turned the formally ceremonial position into the main locus of power.
  • The Economist Intelligence Unit does not expect drastic political or economic policy changes under the new government and president, although there may be changes in emphasis and rhetoric, and its inclination towards growth stimulus measures may cause difficulties in negotiations with the IMF.
  • Serbia will not recognise Kosovo, and will continue to campaign against further international recognitions. Serbia will continue its pursuit of EU membership, but demands for a normalisation of relations with Kosovo will present an obstacle to its integration. In 2013 Serbia may be given a date to start accession talks, but negotiations, once they start, will be extended, and accession before 2020 is unlikely.
  • We expect the government to sign a new stand-by agreement with the IMF for 2013-15 (the 2011-13 precautionary arrangement is in abeyance). Provided that the government addresses budget and public debt concerns, and tackles structural and business environment reforms, a new programme will get under way, helping to underpin foreign investor confidence.
  • The dinar will remain subject to volatility in 2012-13, but we forecast a modest real appreciation (against a trade-weighted basket of currencies) from 2013 onwards, assuming that economic conditions stabilise.
  • We estimate a contraction in real GDP of 1.5% in 2012, reflecting recession in the euro zone, and a return to weak growth in 2013. GDP growth is forecast to average 3.6% per year in 2013-17. After expanding in 2011-12, the current-account deficit will contract in 2013-17.

  

  December 01, 2012

View detailed map

Country Briefing

Total area

88,361 sq km (including Kosovo)

Population

7.5m (2002 census, excluding Kosovo); 9.5m (Economist Intelligence Unit estimate, including Kosovo); 7.3m (January 1st 2010, Republican Statistical Office, excluding Kosovo)

Main cities

Population in '000 (2002)

Belgrade (capital): 1,576°

Kragujevac: 176a

Novi Sadb: 299°

Pristinac: 108 

Nis: 251a

a Figures from the 2002 census in Serbia. b Capital of Vojvodina. c Capital of Kosovo. (This figure is from the 1981 census. Most Kosovo Albanians did not participate in the 1991 and 2002 censuses.)

Climate

Continental

Weather in Belgrade (altitude 132 metres)

Hottest month, July, 17-28°C (average daily minimum and maximum); coldest month, January, -3°C (average); driest months, February and March, 46 mm average rainfall; wettest month, June, 96 mm average rainfall

Languages

Serbian, Albanian (in Kosovo) and Hungarian (in Vojvodina)

Weights and measures

Metric system; a "wagon" of 10 tonnes is often used in trade figures

Currency

Serbian dinar (RSD) = 100 paras

Time

One hour ahead of GMT

Fiscal year

Calendar year

Public holidays

January 1st-2nd (New Year), January 7th (Orthodox Christmas), February 15th (National Day of Serbia), Orthodox Easter (April 13th, 15th and 16th in 2012), May 1st-2nd (Labour Day). May 9th (Victory Day), June 28th (St Vitus Day)

March 01, 2012