Download PDF
Quick Facts
- Population:
- GDP (PPP):
- $105.5 billion
- 1.8% growth
- 1.2% 5-year compound annual growth
- $15,000 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
Serbia’s economic freedom score is 63.9, making its economy the 69th freest in the 2019 Index. Its overall score has increased by 1.4 points, with a large increase in fiscal health and improvements in scores for business freedom and government spending surpassing drops in trade freedom and judicial effectiveness. Serbia is ranked 34th among 44 countries in the Europe region, and its overall score is below the regional average but above the world average.
Serbia is still in transition from statism to a market economy and still recovering from civil war. With strong economic growth and significant fiscal consolidation, the government plans further incremental reforms to improve the business environment. Progress to reform public administration and privatize state-run companies in the electricity, communications, and natural gas sectors will be slower. Deeper institutional reforms are also needed to modernize tax administration, tackle bureaucracy, reduce corruption, and strengthen the judicial system.
Background
Independent since the collapse of Yugoslavia in 1991, Serbia applied for membership in the European Union in 2009. A 2013 agreement normalized relations between Serbia and Kosovo. Former Prime Minister Aleksandar Vucic of the center-right Progressive Party, which had won snap parliamentary elections in 2016, was elected president in April 2017 and now controls nearly every lever of power. Serbia cannot accede to EU membership without more reforms, stronger rule of law, and better relations with regional neighbors. In addition, EU membership risks displeasing Russia, with which Serbia has historical ties and upon which it remains dependent for energy. Serbia’s largely market-based economy relies on manufacturing and exports. State-owned companies remain significant in certain sectors.
Serbian citizens and foreign investors enjoy full rights to ownership of private property. Enforcement of those rights can be extremely slow, but a new law broadening and clarifying the powers of enforcement agents was adopted in 2018. As a practical matter, the independence of the judiciary is circumscribed by political influence. Corruption remains a problem, and the government fails to enforce anticorruption laws effectively.
The top personal income tax rate has been cut to 10 percent, and the corporate tax rate is a flat 15 percent. Other taxes include value-added and property taxes. The overall tax burden equals 38.4 percent of total domestic income. Over the past three years, government spending has amounted to 42.8 percent of the country’s output (GDP), and budget deficits have averaged 1.2 percent of GDP. Public debt is equivalent to 61.5 percent of GDP.
Despite some streamlining of the process for launching a business, other time-consuming requirements reduce the regulatory system’s efficiency. The government recently introduced amendments to the labor law that was implemented in 2005, but labor-market rigidity persists. The unemployment rate remains over 10 percent. The government maintains high agricultural subsidies and plans to increase subsidies for crop insurance.
The combined value of exports and imports is equal to 113.7 percent of GDP. The average applied tariff rate is 6.5 percent, and overall trade freedom is undercut by nontariff barriers, the effect of which is exacerbated by slow progress in reforming public administration and loss-making state-run companies. Institutional impediments to investment linger. About 77 percent of adult Serbians have an account with a formal banking institution.