12/07/2021
The European Central Bank (ECB) and the European Commission (EC) have recognised that Serbia has confirmed its capacity to minimise the economic fallout from the pandemic, and have praised the NBS’s timely and forceful response to the pandemic. This is a conclusion reached today in Brussels at the regular annual meeting of EU member states, Western Balkan states and Turkey, and the EC and the ECB. The meeting was held as part of the Economic and Financial Dialogue between the EU and the Western Balkans and Turkey, whose aim is preparing these countries for EU accession. NBS Governor Ms Jorgovanka Tabaković headed the Serbian delegation. State Secretary at the Finance Ministry Mr Gojko Stanivuković also took part in the dialogue.
At the start of the meeting, Governor Tabaković agreed with the European officials’ assessment that “the impact of the COVID-19 crisis was mitigated by а strong pre-crisis momentum”, also on account of “prudent policies during past years”. To corroborate this, Governor Tabaković pointed out the strategic activities undertaken to broaden the base of investors and markets, which is something European officials also recognised, noting that the “contraction of goods exports in Serbia was limited due to their diversification achieved in earlier years”. “Despite the pandemic, the net inflow of foreign direct investment ensured the coverage of the current account deficit of around 1.5 times during last year as well. The full coverage of the current account deficit by the most stable inflows is recorded for the sixth year in a row. We project this trend to continue over the years to come”, said the Governor. She particularly emphasised the importance of strategic decisions of President Aleksandar Vučić, which enabled Serbia to respond strongly to the pandemic and to quickly recover.
“Owing to responsible conduct of economic policy in the past nine years, we have increased the resilience of our economy to various negative shocks. Owing to this, as well as timely and large-scale monetary measures and fiscal stimuli, including a successful vaccination strategy, our GDP exceeded its pre-crisis level already in the first quarter of 2021. All this together, along with the continuation of reforms and investment, will result in Serbia recording one of the highest growth rates in Europe this year, as it was the case last year”, added the Governor.
The ECB and the EC assessed that in a timely and forceful response to the pandemic, the NBS provided a significant support to fast economic recovery in Serbia. “With its measures, the NBS supported further growth in banks’ liquidity in the period when it was most needed, and it ensured smooth functioning of the financial system and even more favourable conditions of financing businesses and citizens. The NBS was often “the response of first resort”, i.e. it supported citizens, businesses and the government to more easily overcome the crisis financially. Along with financial sector measures, the moratorium on the repayment of credit liabilities, and loans under the Guarantee Scheme, the favourable financing conditions helped lending activity grow by around 10% y-o-y in late 2020. Even during the pandemic, lending contributed to an even recovery of consumption and investment”, stressed the Governor.
The ECB and the EC stated that inflation has remained low and stable, as in the last seven years. During 2020, inflation moved around the lower bound of the target tolerance band (3±1.5%), and is projected to move around the NBS target midpoint in the medium run. They also stressed the importance of the fact that medium-term inflation expectations remained anchored even in the pandemic conditions, as well as of the stability of the exchange rate, and the adequate level of FX reserves measured by different criteria.
The ECB and the EC assessed that owing to the solid position pre-pandemic, as well as to the well-timed and adequate economic policy support, the domestic banking sector stayed resilient to risks. This is indicated also by capital adequacy and liquidity ratios that stayed well above regulatory minimums even during the pandemic. The crisis caused by the COVID-19 pandemic confirmed the importance of all previously taken measures and activities in terms of NPL resolution, owing to which the share of NPLs in total loans fell to 3.7% at end-2020, staying unchanged through May 2021.
Progress was also noted in terms of the dinarisation process, which continued against the backdrop of heightened uncertainty caused by the pandemic. The greatest progress in the last year was recorded with the share of corporate dinar loans – highlighted as a priority during the previous dialogues, as well as with the further rise in household dinar savings. This means that the recommendation to continue supporting increased use of the domestic currency, given within the last year’s dialogue, was largely implemented. The only recommendation given during this year’s dialogue that falls within the scope of competences of the NBS relates to continued implementation of the robust regulatory framework in the financial sector in line with best international practices, as well as further support to the process of dinarisation, including through promoting FX hedging instruments.
Furthermore, the data compiled by the NBS, as one of the key official statistics producers in the country, and submitted to European institutions on a regular basis, are assessed to be aligned with the methodological requirements of the Eurostat and the ECB.
Speaking about the measures planned for the period ahead, Governor Tabaković said that before all participants in the dialogue is a rich reform agenda, and Serbia has clearly defined its agenda within the Economic Reform Programme. “To the extent that each country fares well, we will create the foundations for even greater joint prosperity. The task of the NBS is that we remain the first thing that comes to mind when one mentions stability and trust”, concluded the Governor.
Full speech of Governor Tabaković is available here.
Governor's Office
