New economy: The Vienna Institute of Economics expects a change of government in Serbia

Expectations for the growth of the gross domestic product (GDP) this year in Serbia are being adjusted downward by financial institutions. International Monetary Fund (IMF) he recently told us that in April he will most likely announce a revision of the GDP for Serbia, which will be slightly worse, while the Vienna Economic Institute for the New Economy says that they not only expect a drop in GDP, but also change of government, Aleksandra Nenadović writes for The new economy.

"We haven't published the latest projections yet, we are currently preparing them, but we will reduce the forecast for GDP growth this year a little, and increase it for the next two years. This is due to protests and political changes - it is visible that economic activity slowed down a bit in the first quarter, but our expectations are also that there will be a change of government either by the end of this year or the beginning of the next, so then growth will be a little higher. And global events, around the trade war, certainly have an impact on all of this," says Branimir Jovanović, economist for the Balkan countries at the Vienna Institute for International Economic Studies.

Decrease in foreign exchange reserves

In the last two months, the National Bank of Serbia (NBS) has reduced the foreign exchange reserves used to defend the dinar against the euro. From the beginning of 2025 to the end of February, NBS net sold 745 million euros, while in January it was a net seller of 420 million euros, while in February this sale was reduced to 325 million euros. Last year, it acted in the opposite direction, so the NBS bought EUR 2,7 billion in order to maintain the exchange rate.

"Foreign exchange reserves decreased a little in January and February, and the dinar weakened a little, to 117,2 per euro. This is also due to the unfavorable economic situation, but we do not expect any drastic changes. However, the reserves are at a good level - about 7 months of imports, which is much more than the rough rule that they should be at least 3 months. The dinar will probably weaken a little further, but not more than 117,5."

Borrowing in Eurobonds up to two billion euros

This year, Serbia expects borrowing in the form of Eurobonds of up to two billion euros, domestic issues of up to 2,1 billion euros and loans from commercial sources up to 3,1 billion euros, which will create pressure on the already high public debt, and when it comes to its share in GDP. When GDP decreases, the share of public debt in it automatically increases. The Serbian Government has also organized twice in the midst of protests the issuance of domestic securities.

"The fiscal position also appears stable. The deficit is likely to be slightly higher than previously expected, but will not exceed 3 percent. Public debt will increase by 1-2 percentage points, but will remain below 60 percent."

The budget deficit for this year is planned at 3 percent, but in the meantime, budget payments have increased significantly due to unforeseen demands in the form of student loans, school fees, salaries for education, NIS sanctions and potential others. Given that the country has an advisory arrangement with the IMF that requires public debt to be below 50 percent of GDP, it remains to be seen how much and whether this ceiling will be breached.

Source: New Economy