Jorgovanka Tabaković, Governor Of The National Bank Of Serbia

Carefully Preserving Stability And And Introducing Innovations

Preserving the pricing and financial stability that we’ve achieved remains our priority. We can state with satisfaction that we’ve even managed to achieve these goals during the pandemic and this time of increased uncertainty on the international market.

The International Monetary Fund (IMF), along with other international financial institutions and domestic sources, has confirmed that it expects Serbia to achieve strong GDP growth in 2021, and then continued high growth rates of 4.5% in 2022 and 2023, and four per cent from 2024 onwards. This does not, however, mean that policymakers can relax, considers National Bank of Serbia (NBS) Governor Jorgovanka Tabaković.

What kind of monetary policy awaits us in the period ahead?

Maintaining price stability is the most important goal of the NBS, so monetary policy depends on a large number of factors from the domestic and international environment that influence inflation. And economic growth is, naturally, among those factors. However, it matters when growth is predominantly achieved through rising consumption, as was the case until 2008, or when it is predominantly led by fixed investments and exports, as has largely been the case since 2015. Of course, the growth of consumption is still an important pillar of economic growth today, but the crucial factor is that we have consumption growth that’s slower than overall GDP growth. In this way, consumption is reduced as a share of GDP and additional space is created for investments and exports. At the same time, inflation is greatly influenced by numerous other factors, such as the price of oil and agricultural products on the world market, and also to a certain extent by the prices of industrial products and raw materials, through their impact on production costs, which is precisely the situation we currently have around the world.

When it comes to domestic factors, the results of the agricultural season still have a major influence, and the rise of regulated prices certainly reflects on inflation. Nonetheless, when all of the aforementioned is taken into account, the NBS expects year-on-year inflation over this year and 2022 to average around the central values of targeted inflation of around 3%.

Although news of expected economic growth is undoubtedly good, it is also accompanied by expectations that reforms will continue and accelerate. What are your priorities until the end of this year and during next year?

Our priorities remain the same – preserving achieved pricing and financial stability, at the base of which is the relative stability of the exchange rate. We’ve succeeded in achieving all of this even during the period since the outbreak of the pandemic and increased uncertainty on the international market.

When it comes to structural reforms, everything that the NBS has done in that domain during previous years is often forgotten. We have achieved manifold reductions in NPLs in the banking system – from over 22% to less than 4%, increased the degree of dinarisation and modernised Serbia’s payment system. In addition to that, we are working constantly on the development of the domestic capital market. We will continue working to improve the business environment through the advancement of the financial system, through the development of innovative services and technologies in the domain of financial services, among other things, and enabling new functionalities for the instant payment and Dinacard system.

A cautious approach to the further liberalisation of capital movements is often misinterpreted as being restrictive, while it is also mistakenly concluded that the liberalisation of capital flows implies the abolition of reporting

Foreign investment totalled 2.9 billion euros in 2020. What kinds of expectations do you have for 2021?

Record inflows of foreign direct investments in the years prior to the pandemic, and an inflow of three billion euros even during the pandemic year of 2020, best demonstrate the fact that the international investment public views Serbia as a favourable investment destination and as having an economy that’s managed responsibly. Even more importantly, FDI inflows have been predominantly directed towards industry and infrastructure, which increases our exports over the medium and long term.

When it comes to this year, according to preliminary data, we already had FDI inflows exceeding 1.7 billion euros in the first six months, which represents an increase of about 19 per cent compared to the first half of 2020. As for our projection for the year as a whole, international institutions and domestic experts are very familiar with the fact that they are always very conservative. In accordance with that, we project FDI inflows at the annual level to amount to approximately 2.8 billion euros, which will be more than sufficient to cover the balance of payments’ current account deficit.

The reforms implemented by the NBS have significantly eased the transition to e-transactions for many economic and financial stakeholders. What would you highlight as the key lessons when it comes to this change?

The reforms that have been undertaken by the NBS, as the regulator, alongside the improved payment infrastructure, have had a strong influence on the growth of electronic payments in Serbia. The trend of increasing numbers of transactions executed using mobile and electronic banking continued in 2020. We are also recording constant growth in the number of transactions performed through our instant payment system, and our citizens and the economy have already become accustomed to money reaching the recipient in just a few seconds.

Jorgovanka Tabaković

The NBS hasn’t worked exclusively on the development of infrastructure, but rather also on the development of various functionalities of the system. Users quickly and easily embrace modern and innovative services as soon as they use them just once, and they immediately become part of their daily routine provided these services are secure, easy to use and save time or reduce the cost of going to a bank branch. However, citizens must have the possibility to choose to pay in cash, by card or over the phone.

Unlike the financial crisis of 2008, during the pandemic the banking system has remained stable, liquid and well-capitalised, and this has undoubtedly been influenced by the measures taken by the Government of Serbia and the NBS. Is it now time to return to the path of fiscal stabilisation?

As you stated yourself, the measures taken by the Government and the NBS have also ensured the stability of the banking sector, but let’s not forget that, under circumstances never previously recorded, full macroeconomic stability has also been preserved. Is it now time to return to the path of fiscal stabilisation? The state’s plans head precisely in that direction and Serbia is already on that path. The fiscal strategy for the next three years envisages the deficit being reduced to about 3% of GDP in 2022, about 1.5% in 2023 and about 1% of GDP in the years thereafter. The same applies to the GDP share of public debt, the plan for which is to reduce it by one to two percentage points annually. The most important thing is certainly for the share of the central government’s public debt to remain below the level of 60% of GDP, and that is seen not only by us, but also by international institutions and ratings agencies.

Considering speculation regarding inflation, do you expect changes? How can this be reflected in the level of our increased external indebtedness and possibilities of repaying debts?

It is very important for Serbia to have achieved macroeconomic stability in the period prior to the crisis and to have managed to preserve it during the pandemic. The successful implementing of fiscal consolidation from 2015 to 2017, as well as the maintaining of an almost balanced budget after that, alongside dynamic economic growth, enabled public debt to be reduced to a sustainable level, thus reducing the risks of interest rate movements.

This certainly doesn’t mean that there is no risk – the most important task of economic policymakers in the following period will be to provide conditions for dynamic growth over the medium term, and for economic policies, as before, to be directed towards preserving macroeconomic stability.

Greening the economy mustn’t be competitive against economic development, but exclusively complementary with it – we need green realism, which is particularly important for growing countries

The NBS has been progressive in many areas, but it seems that, in some elements, economic stakeholders encounter more restrictive rules than they would consider necessary. This is the case, for example, in the scope of the NBS’s discretion, with regard to reporting on cross-border loan transactions, to restrict a resident from providing securities or guarantees in connection with foreign loans and similar matters. What has resulted from your consultations with the FIC when it comes to recommendations contained in the White Book 2020, which lists some proposals for NBS?

The progressiveness of the NBS is a result of careful analyses and monitoring of all proposals of economic actors and the continuous implementing of activities aimed at creating a more favourable business environment. The cautious approach to the further liberalisation of capital movements is, unfortunately, often misinterpreted as being restrictive. Moreover, it is mistakenly concluded that the liberalisation of capital flows implies the abolition of reporting. The opposite is actually the case, with the need to monitor the effects of liberalisation growing in parallel with liberalisation, in order to glean up-to-date and accurate data that’s essential to making suitable decisions and timely responses in monetary policy. In this regard, the statement that the NBS discretionarily restricts residents from providing securities or guarantees in connection with foreign loans is yet another example of a misunderstanding of positive regulations. Specifically, in accordance with foreign exchange regulations, residents – legal entities – are free to provide securities or guarantees, bonds and other collateral as means for securing foreign loans, i.e., credit transactions with foreign countries.

Residents are also free to provide securities and other collateral as means for securing credit transactions between non-residents from the EU, while the resident must be the majority owner of a non-resident debtor for credit transactions between non-residents outside the EU. When making a decision on possible restrictions on the performing of the aforementioned tasks, the NBS respects the principles of individual assessment, targeting and proportionality, and the application of the noted principles has been previously harmonised with the European Commission and is aligned with EU regulations.

Questions are also being raised about the further relaxing of administrative requirements and the expanding of possibilities for electronic reporting. What are your concerns in that regard?

The NBS works continuously to improve the reporting process with the aim of simplifying it, so electronic reporting has been introduced for all transactions with foreign countries for many years now. The obligation to submit documentation on capital works has been reduced to the minimum possible measure, and that is primarily to determine that these are not fictitious transactions, considering the possibility of large amounts of foreign exchange inflows and outflows significantly influencing financial stability.

Reducing paperwork represents just a small part of “green banking”. What will NBS membership in the Network for Greening the Financial System mean for you and for Serbia?

The NBS is sincerely committed to managing climate risk, which is why it has its place in this reputable group. We didn’t join this network merely to follow modern trends, rather in our desire to participate directly in finding the best solutions for supporting the greening of the economy.


It is most important for the share of the central government’s public debt to remain below the level of 60% of GDP, which is also envisaged by the fiscal policy


The key task of economic policymakers is to provide conditions for dynamic growth over the medium term, alongside the preserving of macroeconomic stability


We must leave citizens with a choice, to acquaint them with innovative services, but not to impose them as an exclusive solution

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