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European Union Commends the Adequacy of Serbia’s Monetary Policy and Solid Trends in the Banking Sector

The National Bank of Serbia’s monetary policy was pursued adequately and consistent with the achievement of the inflation target in 2018 as well – it was concluded today in Brussels during the Economic and Financial Dialogue between the European Union and the Western Balkans and Turkey, and the European Commission and the European Central Bank. Serbia was represented by the National Bank of Serbia’s Governor Jorgovanka Tabaković and Finance Minister Siniša Mali.

As emphasized, “inflationary pressures are low and the central bank pursues its monetary policy consistent with the achievement of the inflation target”, which was also a recommendation issued to all countries within the last year’s Dialogue. It was concluded that Serbia fully met this recommendation. The high capitalisation of Serbia’s banking sector and satisfactory liquidity were also underlined, and the country’s significant results in terms of the reduction of the NPL ratio were commended. As assessed, the favourable terms of borrowing, also underpinned by the National Bank of Serbia’s measures, contribute to lending and economic growth. Moreover, the growth in lending to both corporate and household sectors is assessed as sound, given that the NPL ratio declined significantly as of mid-2015. Positively assessed were also the measures adopted by the National Bank in late 2018 concerning unsecured non-purpose household lending at longer maturities. The measures undertaken by the authorities in the context of the Dinarisation Strategy, adopted in 2012 and updated in late 2018, are yielding good results. Progress is visible notably on the deposit side, which is also paramount for faster progress on dinarisation on the loan side. The recommendation issued within the last year’s Dialogue has thus been fulfilled to a significant extent, with the continued encouragement of the use of the domestic currency being practically the only guideline agreed during this year’s Dialogue which is under the National Bank’s remit.

Governor Tabaković thanked European officials and highlighted that inflation in Serbia has been at a low level for more than half a decade. “Serbia has also recorded a sharp fall in the NPL ratio. And another fact is that with our measures we have supported two-digit growth in corporate and household lending, and via this channel, we supported economic growth as well.”

Joining in the thematic discussion about structural reforms that attract foreign direct investments (FDIs), Governor Tabaković said that during the last four years FDI inflows in Serbia stood at around 6% of GDP on average, while last year alone they reached 8.2% of GDP, providing for full coverage of the current account deficit and lower financing risk.   

She also highlighted project diversification of investment. “More than half of investments in Serbia are channelled to tradable sectors, with one third of the total going to the manufacturing industry through many small projects in export-oriented sectors. Being so, FDIs have been one of important drivers of the two-digit export growth rates of our manufacturing industry during the last four years.“ That FDIs contribute to export diversification is also confirmed by the IMF’s Export Diversification Index, according to which Serbia ranks 12th out of 186 countries.

In addition to low inflation, the key factors driving FDIs to Serbia are relative stability of the exchange rate and the results achieved on the fiscal front and in many other areas as part of the stabilisation agenda. The Governor assessed that political stability is critical in terms of attracting investment, and this is something Serbia has. The same was assessed by Moody’s in their yearly report published earlier this month, stating that “Serbia clearly ranks above the countries with the same rating when it comes to political stability and government effectiveness”.

Speaking about the activities that lie ahead, Governor Tabaković underlined the following: “I believe that the integration in infrastructure flows, the latest technological projects and innovations, in line with our potentials, are the basis for Serbia’s growth. At the same time, this is the basis for investment. And our potentials are the geographic position and work force. Anyone offering a partnership in this context is welcome. It is up to us to provide macroeconomic stability and equal treatment for all investors. For we do not have the privilege or the reason to measure this by any other criterion but the interest of our citizens in better living standards and sustainable growth.” 

Governor's Office