Serbia Economy Facts
In the mid-2010s, the Serbian economy showed a slight recovery after many years of crisis and problems. This does not mean that there are no major challenges to address: high unemployment (not least among the young); a budget deficit that, despite a rapid decline, is still high and contributes to growing government and foreign debt; widespread corruption and deficiencies in the justice system.
An aging population means that pension payments take up an unreasonably large portion of the state budget and so do salaries for employees in the still large and often inefficient and unprofitable public sector. Despite many reforms, the emergence of a modern service sector has been slow, while both agriculture and industry are still important parts of the economy.
- Countryaah.com: Major imports by Serbia, covering a full list of top products imported by the country and trade value for each product category.
The problems are partly due to the global financial crisis of the 21st century and the subsequent euro crisis, but mainly to the consequences of the 1990s war and sanctions and the fact that there was a political resistance to changes in the economic structure. Only in 2009 did GDP start to reach the same level as 1989.
Following Milošević’s fall in 2000, Serbia received large write-offs on its debts. With the help of pressure and support from the World Bank, the International Monetary Fund (IMF) and the EU, market economy reforms have been implemented. Yet much remains to be done. Serbia is far behind neighboring countries, for example in terms of purchasing power of the population. In addition, wages and pensions have not kept pace with inflation (but still take an unreasonably large part of the state budget and will need to be reduced).
- Abbreviationfinder.org: Check this abbreviation website to find three letter ISO codes for all countries in the world, including SRB which represents the country of Serbia. Check findjobdescriptions to learn more about Serbia.
Economic ruin in Yugoslavia
Already when the old Yugoslav federation was divided between 1991 and 1992, the economy was in a deep structural crisis. When the UN Security Council introduced financial sanctions against the new Yugoslavia in 1992, the problems became even greater. The cost of the wars in Croatia and Bosnia and Herzegovina, to support the Serbs there and aid to half a million Serbian refugees, came to mean financial ruin for Yugoslavia. People’s everyday lives were dominated by the informal economy during the war and crisis years, ie black jobs and smuggling.
After the peace settlement in 1995, an economic reform program was presented, but little was done. When the war in Kosovo broke out in 1998 with new sanctions from the EU and the US, all opportunities for economic improvement disappeared. During the NATO bombing war of 1999, large parts of Yugoslavia’s infrastructure and industrial facilities were destroyed.
The sanctions remained as long as Milošević remained in power. Subsequently, extensive reforms of the economy began. Important points, besides the privatization of state-owned companies, were to abolish price controls and barriers to trade, simplify the tax system and introduce VAT and a strict monetary policy to achieve stable prices. Some prices were released in 2001, which contributed to inflation of 90 percent.
The deficits in the state budget have remained a problem throughout the 2000s. Among the causes are large wage increases to government employees, subsidies to state-owned companies and deficits in health insurance and pension systems. The global financial crisis, which hit in the autumn of 2008, doubled the budget deficit, slowed growth and the Serbian dinar lost value against the euro. Since both the state and companies and private individuals had loans in euros, everyone was affected. In 2009, Serbia received an emergency loan of EUR 3 billion from the IMF to strengthen the foreign exchange reserve and the value of the dinar.
Although the privatization of business has been extensive, the restructuring of the manufacturing industry has not been as rapid. About a quarter of all employees work in state-owned companies or within state and municipal government, and subsidies to large, state and nonprofit companies dig deep holes in the Treasury. At the beginning of 2013, the state had been forced to borrow money to pay wages.
The intention was that the remaining state-owned companies would have been fully or partially privatized as early as 2009 – a requirement from both the EU (for membership) and from the IMF – but those that remained were also the least attractive and thus difficult to get rid of. Today, there are around 500 often unprofitable and debt-burdened state companies left to sell (or close down), such as the pharmaceutical company Galenika, where in 2016 the state still owned 70 percent. However, in the summer of 2013, the state had managed to sell 49 percent of the airline JAT (which was also renamed Air Serbia) to the United Arab Emirates, which has also made a number of investments in Serbia. However, large electricity, gas and telecommunications companies remain in state ownership but have lost, or will lose, their monopoly position.
The World Bank has provided a loan of US $ 100 million to facilitate continued privatization.
The nationalist regime that took office in 2012 has won elections on promises of hard-fought corruption and improved living conditions for the population. Initially, the government also took measures against the corruption, which it hoped would make foreign investors more inclined to invest in Serbia, but thereafter they appear to have recovered somewhat. In its autumn 2016 report on reform activities in Serbia, the European Commission stresses just how important the fight against corruption is.
The IMF had canceled its credit program to Serbia in connection with the fund’s failure to approve the 2012 state budget, because it did not contain sufficient far-reaching reforms. Only at the end of 2014 did the IMF agree on a new three-year credit program, close to a billion US dollars.
In 2014, the already strained economy had suffered a deep recession. In the spring, the country was hit by the most severe floods in a century, which mainly affected industries such as mines, energy and agriculture, while destroying infrastructure. The costs of the floods amounted to around 1.5 billion euros, or 3 percent of GDP, which decreased by 1.8 percent. Exports, industrial production and foreign direct investment all fell and the currency, the dinar, was in free fall despite the intervention of the Serbian Riksbank. This meant that government debt was constantly increasing; since 2008, it had more than doubled. For all Serbs with housing loans in euros, this meant constantly higher costs.
The new credit program with the IMF brought a light to the dark, but at the same time required Serbia to reduce the budget deficit and government debt and create new jobs, mainly to keep all well-educated young people in Serbia. As part of the tangible austerity measures that are noticeable to the country, and not least to households, Serbia began in November 2014 to cut the salaries and pensions of public servants as well as the contributions to debt-burdened government companies. The reforms, together with increased exports and low oil prices, have led to a slight upturn in the economy. Today, the dinar is relatively stable, inflation historically low, interest rates have been lowered and investment has increased.
FACTS – FINANCE
GDP per person
US $ 7,234 (2018)
US $ 50,508 million (2018)
4.3 percent (2018)
Agriculture’s share of GDP
6.2 percent (2018)
Manufacturing industry’s share of GDP
15.0 percent (2004)
The service sector’s share of GDP
51.0 percent (2018)
2.2 percent (2019)
Government debt’s share of GDP
54.5 percent (2018)
US $ 34 549 M (2017)
US $ 17 986 million (2018)
US $ 24 158 million (2018)
– US $ 2,630 million (2018)
Commodity trade’s share of GDP
89 percent (2018)
Main export goods
iron and steel, rubber, clothing, wheat, fruits and vegetables, metals, electrical appliances, weapons and ammunition
Largest trading partner
Germany, Italy, Russia