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- GDP (PPP):
- $78.9 billion
- 1.8% growth
- 1.7% 5-year compound annual growth
- $10,642 per capita
- Inflation (CPI):
- FDI Inflow:
Serbia’s economic freedom score is 58.6, making its economy the 94th freest in the 2013 Index. Its score is 0.6 point better this year, with improvements in half of the 10 economic freedoms, including investment freedom and business freedom, outweighing deteriorations in freedom from corruption and monetary freedom. Serbia is ranked 37th out of 43 countries in the Europe region, and its overall score is below the world and regional averages.
Over the past decade, Serbia has implemented significant structural reforms in some parts of its economy. The economy’s competitiveness is supported by low flat tax rates, relative openness to global trade, and ongoing regulatory reforms. At 10 percent, the corporate tax rate is among Europe’s lowest. A wider range of credit instruments has become available to the private sector, but the level of financial intermediation remains relatively low.
Despite some progress, Serbia lacks the political will needed for bold institutional reforms. Inefficient government spending remains high. Deeper institutional reforms are needed to tackle bureaucracy, reduce corruption, and strengthen a judicial system that is vulnerable to political interference.
Serbia signed a Stability and Association Agreement with the European Union in May 2008 and submitted its formal application for membership in December 2009. Accession talks were contingent on the arrest of wartime leader Ratko Mladic, who was apprehended in May 2011. In March 2012, the EU Council formally invited Serbia to begin the accession process after Serbia agreed to allow Kosovo to attend West Balkan regional meetings. Nationalist President Tomislav Nikolic, elected in May 2012, has pledged to continue down the path of Euro–Atlantic integration and membership in the World Trade Organization. Serbia’s economy has attracted significant foreign investment in manufacturing and services and has become far more integrated into the international economic system, but unemployment remains close to 25 percent.
Serbia’s constitution supports an independent judiciary, but the system is inefficient and vulnerable to political interference. Laws protecting real and intellectual property rights are not enforced effectively. Organized criminal groups engage in money laundering, and corruption remains widespread in the economy. It is estimated that nearly 25 percent of spending on public procurement (or about 15 percent of GDP) is diverted by corruption.
The top income tax rate is 15 percent, and the corporate tax rate is a flat 10 percent. Other taxes include a value-added tax (VAT) and a property tax. The overall tax burden equals 35.4 percent of total domestic income. Government spending is equivalent to 44.6 percent of GDP. The budget deficit sits at 3 percent of GDP, and public debt is over 45 percent of total domestic output. The chronic budget gap poses a continuing challenge.
The business start-up process does not require minimum capital and takes only six procedures. Despite progress in streamlining the process for launching a business, other requirements remain time-consuming. Obtaining licenses costs over 14 times the average level of annual income. A fully functioning modern labor market has not developed, and the informal sector remains significant. Inflation has risen sharply.
The trade-weighted average tariff rate is 6 percent, and non-tariff barriers add to the cost of trade. Some trade barriers have been reduced as part of Serbia’s efforts to join the WTO. Most sectors are open to foreign investment, and recent reforms have improved the investment environment, but lack of transparency deters investment growth. Privatization and consolidation reforms have revived the once-defunct banking sector.