Siniša Mali, Minister Of Finance Of The Republic Of Serbia

I Don’t Expect A Recession

We mustn’t lose what we’ve already achieved, and that’s full employment and economic growth. Even though much of this doesn’t depend on us, we can make efforts to absorb the shocks and continue with the reform of public enterprises and fiscal reforms

The current Government of the Republic of Serbia is the first government since the 2008 financial crisis to confront the effects of the global economic crisis. Judging by the forecasts of economic experts and international financial organisations, the incoming administration – in the case that the current crisis continues – will face inflation, recession or stagflation for a relatively extended series of years.

We spoke with Serbian Finance Minister Siniša Mali to discuss how ready Serbia is to handle these challenges and how this readiness is reflected in the policies of the government and the Ministry of Finance.

“This is really all about a huge crisis, which has greater ramifications than the one from 2008, and that’s why economic policy priorities are extremely important. We must, on the one hand, remain focused on citizens and protecting their standard of living, while, on the other hand, we must concentrate on the economy and improving the economic environment,” says CorD’s interlocutor.

“We mustn’t lose what we’ve already achieved, and that’s full employment and economic growth. Likewise, safeguarding the food and energy security of the country is one of the priorities, as is alleviating inflation, which is imported on the whole.”

“A lot of this, unfortunately, doesn’t depend on us,” notes Mali, “but rather on external factors that it’s tough for us to influence, but we can try to absorb the shocks. Of course, extraordinary circumstances mustn’t be an excuse not to deal with other topics, such as, for example, the reform of public enterprises or the continuation of fiscal reforms.”

And despite all the uncertainties, our interviewee still doesn’t expect a recession. “Our economic growth stood at 4.4 per cent in the first quarter, and at four per cent in the second, according to the flash evaluation of the Statistical Office of the Republic of Serbia. Under the conditions of such a crisis, it in indisputable that this is an excellent result.”

The Republic of Serbia signed a new advisory arrangement with the IMF last June that will run until the end of 2023. How much is this arrangement about helping Serbia to determine the proper mix of policies required to maintain stability and economic growth?

We’ve been cooperating successfully with the IMF for years. The current advisory arrangement is in place, and the IMF Executive Board brough the decision at the end of June this year to successfully conclude the second deliberation on the results of that arrangement. It was ascertained that a large number of the arrangement’s goals have been met and that reforms are continuing. Thus, despite the challenges brought by the pandemic, we have mostly fulfilled the commitments we took on under the scope of the structural reform plan. Ahead of us will be discussions on the budget for next year. It is important that we are preparing, in consultation with the IMF, a new set of fiscal rules, among which is a new fiscal rule on debts and deficits that will safeguard our long-term fiscal sustainability. We’ve also already discussed raising salaries, minimum wages and pensions, as well as switching to the Swiss formula in order to harmonise the growth of pensions.

The previous period saw the government intervene with significant funds aimed at maintaining economic growth under the conditions of the COVID-19 pandemic. Do you expect the need for a similar intervention to arise in the period ahead?

During the two years of the pandemic, we helped the economy and citizens with 8.8 billion euros, which is around 17.3% of GDP. We likewise opted for a strategy of making record investments in capital projects, and those measures have resulted in us having the highest cumulative growth rate in Europe over the previous two years. That helped us save jobs and factories, and maintain living standards.

Of course, it is clear that state intervention can’t be ruled out under the conditions of such a global economic crisis. By limiting price hikes on food products and fuel, we succeeded in partially toning down inflation and reducing its impact on the population. Of course, we must be cautious and must help those who really need it, and – as a responsible state – we will do everything to enable the economy and citizens to continue functioning normally.

We remember the last decade for its stable prices, low inflation and cheap money, but we’re now operating in a completely different environment. To what extent has the government taken a responsible approach to adjusting fiscal policy to meet the new circumstances?

We reached economic stability thanks to the tough fiscal consolidation measures that we were forced to implement in response to the former government’s mismanagement of public finances. Fortunately, we brought order on time and saved enough money, which meant that we awaited the pandemic in a state of readiness and were able to handle all the challenges it brought successfully. Next began the current crisis and worldwide energy problems, followed by record high inflation and other challenges. We also began preparing for this crisis on time, both whenitcomestoreplenishingcommodity reserves and when it comes to securing the energy supply. We are living in very unstable times and no one can reliably predict how the situation will unfold, but we are doing all we can for citizens to feel as few negative consequences as possible.

Under almost impossible conditions that have seen many stronger economies stumble, we are achieving good results… We attracted 3.9 billion euros of FDI last year – more than during the year that preceded the pandemic

When it comes to adjusting fiscal policy to suit the new circumstances, the results are evident: in addition to experiencing the highest growth in Europe cumulatively over the last two years, our public debt stands at the level of around 53 per cent, which is far below the Maastricht level. I would also like to mention the fact that Serbia attracted 3.9 billion euros of foreign direct investments last year, which was more than during the year that preceded the pandemic. So, under almost impossible conditions that have seen many stronger economies stumble, we are achieving good results.

How much can we rely on regular supplies of electricity to the economy and the population in the months ahead?

We are certainly awaited by a tough winter, but we are doing all we can to ensure we have enough energy, both for the economy and the citizenry. I believe there will be enough of all sources of energy, and we, as a state, are fighting like lions to secure everything. We monitor the situation on a daily basis, in order for us to be able to accurately predict problems and react. Citizens have also seen this, because we have utilised various measures since the beginning of the crisis to curb inflation and reduce shocks, such as limiting fuel prices or freezing the prices of basic foodstuffs. When it comes to energy, we have signed 11 contracts on the purchase of coal from mines in different countries.

That coal is slowly arriving, while we are also negotiating with Chinese partners on the purchase of additional coal to ensure that EPS stores will have sufficient coal during the winter. We’ve also acquired enough Mazut [heavy fuel oil], and it’s important to note that we’re also considering building new capacities to strengthen our power system. When it comes to gas, I would remind you that we’ve already leased a storage facility in Hungary where we will store 500 million cubic metres of gas, while the Banatski dvor storage facility will also be filled soon. Likewise, Serbia has already secured more favourably priced gas on the basis of the agreement between the presidents of Serbia and Russia. With the gas we receive from Russia, together with the gas held in storage in Hungary and Banatski dvor, we will secure enough gas for the winter, both for the Serbian economy and citizenry.

Has the current situation with public enterprise EPS (Electric Power Industry of Serbia) prompted you to consider intensifying work on improving the management of public companies, given that they can be a source of debt generation and potential macroeconomic instability?

It cannot be said that public enterprises today generate debts and potential macroeconomic instability. I’m not claiming that the situation is ideal, but it is incomparably better than was the case with our predecessors. I believe that public enterprises can become drivers of progress and development. It was in 2014 that we launched essential reforms that are still being worked on. No public enterprise today represents any kind of fiscal risk to the budget of the Republic of Serbia, and that’s a great success. When it comes to tangible figures, I would note that 25 public enterprises were operating positively in 2015, while last year 84 of them contributed gains to the budget. That is three times higher, i.e., they provided budget contributions totalling as much as 16.8 billion dinars. As for EPS, it is clear that there were higher costs, but the fact that we have money available means that this doesn’t threaten the budget.

One of the key expectations among both foreign and domestic investors is tax system transparency and predictability. How successful do you think the legislative activity of your ministry has been when it comes to creating such an environment?

We work on a daily basis to make the economic environment even more transparent and attractive for doing business. The aim is for us to entice even more investments, both domestic and foreign, because that means new jobs and higher wages. And wearesucceeding in this endeavour, as confirmed by the record-breaking 3.9 billion euros of FDI in 2021.

We must be cautious and must help those who really need it, and – as a responsible state – we will do everything to enable the economy and citizens to continue functioning normally

The introduction of e-fiscalization and e-invoices, as well as significantly improved Tax Administration controls, will certainly contribute to this end, as they serve to create a more competitive and transparent business environment. Our aim is to build a better and more beautiful Serbia, which is why we’re not abandoning reforms. Apart from new laws on fiscalization and e-invoices, we’ve also adopted a set of tax laws and are working actively to reform the Tax Administration, to modernise it and render its operations as efficient as possible.

What effects has the new model of fiscalization had to date?

I’m satisfied with the introduction of the e-fiscalization system, the implementation of which has been mandatory since 1st May. Thanks to this system, which represents one of the key tools in the struggle to combat the grey economy, we’ve ensured incomparably better Tax Administration controls. This changes operations for the better, because the introduction of e-fiscalization, together with e-invoices, represents one of the central pillars of a transparent economy and fair competition. The most important factor is certainly that businesses and citizens understood the significance of introducing e-fiscalization and that they’ve become accustomed to that system. They’ve realised that we should work together in combating the grey economy, because that’s how we will achieve swifter and more efficient operations, and for that to be cheaper for businesses. This is also confirmed by the fact that the majority of those obliged to undergo fiscalization approached the task responsibly and switched to the new system on time, but also the fact that the citizens have understood the importance of taking a fiscal receipt, because the failure to issue one will result in that money not ending up in the budget and not being used to construct hospitals, schools, nurseries, motorways etc.


We are living in very unstable times and no one can reliably predict how the situation will unfold, but we are doing all we can for citizens to feel as few negative consequences as possible


Preserving macroeconomic and financial stability, while providing support for economic growth and maintaining citizens’ standard of living, remain our priorities


In consultation with the IMF, we are preparing a new set of fiscal rules, among which is a new fiscal rule on debts and deficits that will safeguard our long-term fiscal sustainability

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