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Belgrade, Serbia

During a visit to the country last week Cyril Muller, World Bank vice president for Europe and Central Asia, said Serbia must continue to pursue its strategy of deep economic reforms towards a stronger and more inclusive economy.

“Reforming the expensive core public sector will be one of the key elements, especially implementation of reforms in health, education and social protection, where Serbia does not compare well to countries at similar income levels,” he said. “This is challenging, but essential for Serbia’s long-term competitiveness.”

The bank said that one major priority is to resolve issues relating to some of Serbia’s largest socially owned enterprises, some of which have been in the process of restructuring for over a decade, posing a major impediment to the country.

In March last year, the bank approved a $100m loan to help Serbia resolve 514 commercial and socially owned enterprises in the hands of the Serbian Privatisation Agency, waiting to be privatised or declared bankrupt if they were no longer viable.

The bank said at the time the portfolio of SOEs was holding back the country’s development. They imposed high fiscal costs to the country’s budget and its taxpayers, were in arrears on their taxes and social contributions, and were in control of valuable assets such as land and infrastructure that were not being used productively.

In 2013 alone, the 514 companies generated total losses of €690m, or over 2% of the country’s gross domestic product.

While significant progress has been made in resolving the SOEs, concerns remain that some of the largest enterprises are still unresolved. A number of utilities and transport companies also need to be restructured, the bank said.

“Creating sustainable and well-performing public utilities is not only a fiscal necessity, but also critical to Serbia’s objective of being a regional leader in fostering connectivity and economic integration,” Muller said. “Hence this process is pivotal for the government’s chances of success in transforming the economy.”

He added that efforts to make utilities and transport companies financially sustainable is closely related to the resolution of the largest remaining commercial SOEs, because of the arrears the commercial SOEs have towards them.

While crucial, the bank pointed out that these companies also harbour the strongest vested interests opposed to reforms and represent one of the more challenging areas of the government’s reform programme.

Outside of the public sector, the bank said it is important for Serbia to unleash the potential of its underdeveloped private sector by creating an attractive investment climate, fostering innovation, and encouraging employment.