INTERVIEW
Dealing With The 'New Normal' Is Challenging SEBASTIAN SOSA IMF Resident Representative in Serbia
Serbia’s hopes for faster recovery than initially expected should be built upon the recent positive data about retail sales, industrial production and external trade. Yet adequate contingency planning for a possible downsize scenario has to be prepared. Meanwhile, structural reforms shouldn’t wait for better times to be implemented
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lthough we expect an economic rebound in 2021, uncertainty about the timing and pace of the recovery persists. Should the pandemic be more protracted, or its impact stronger than expected, any additional support measures will have to be well targeted to the firms and sectors most in need, as well as vulnerable households, says IMF Resident Representative in Serbia Sebastian Sosa, summarising the uncertainty confronting us. However, he suggests, there are a number of steps that the new Government could take to contain the negative effects of the pandemic and open doors to more robust recovery.
► To what extent has the Serbian Government's policy response mitigated the negative effects the COVID-19 pandemic? – The Serbian authorities deployed a large policy response to mitigate the economic and social effects of the COVID-19 crisis. The fiscal package, which included tax deferrals, wage subsidies, universal cash transfers and a state guarantee scheme for bank loans to SMEs, amounted to about 8.5% of GDP and is among the largest in emerging Europe. The National Bank of Serbia contributed to the response by cutting the policy rate and ensuring adequate liquidity in the banking system, while introducing a moratorium on bank loan repayments. These measures mitigated the impact of the pandemic on businesses, households and employment, and to some extent 42
explain the relatively lower contraction of economic activity in Serbia compared to other countries in the region. A recent IMF empirical study using firm-level data suggests that, while the COVID-19 crisis will have an adverse effect on the financial position and employment of Serbian firms, the effect is countered by the fiscal and monetary policy response.
► Which factors are affecting the contraction of the economy the most? – The COVID-19 shock has hit Serbia’s economy through various channels. Lower external demand has affected exports, which - prior to the outbreak - were projected to grow by eight per cent in 2020 and are now expected to fall by almost 10 per cent this year. Private investment, including by foreign companies, has also contracted amid high uncertainty. Private consumption has also been impacted negatively, partly due to weaker remittances, which fell by 28 per cent in the first half of 2020 compared to the same period of 2019. Moreover, disruptions in regional supply chains, due to the lockdowns in several countries, have affected sectors such as the automotive industry, hurting both investment and exports. ► Which policies are available to the government in order to contain some of the negative impacts, given that the crisis is also hitting our major export markets?
FOREIGN INVESTORS COUNCIL 2020
