How will the latest Resolution of the European Parliament on the situation in Serbia affect Serbia's credit rating and borrowing in 2024? This is an important question, because Serbia is facing a period of significant public investments. The share of investment in GDP is projected to be around 26,5 percent in 2024/2025. year, which is an increase from 18,2 percent in the period 2010-2019. year. As is known, public investments in Serbia are mostly financed by borrowing, which depends on the country's credit rating. The credit rating is most affected by political or economic instability. The resolution cannot destabilize the situation in Serbia, but it announces that a future one may be able to
The credit rating relevant to a country's borrowings is determined by global rating agencies such as Standard & Poor's, Fitch or Moody's. Their ratings for Serbia are currently quite favorable. Fitch assesses us with a credit rating of BB+, which is the standard in the region. (North Macedonia has the same rating, while Croatia has an even better rating – BBB+.) Moody's gives a rating of Ba2. These categories mean that the country is not completely safe for investment, but not too risky either. It is in the "speculative category", which means that there is a moderate chance that it will not be able to repay the debts. All three agencies assess the situation in Serbia as stable, and this is the most important factor for investors' decision to buy government bonds.
The EP Resolution itself, that is, the claims about election manipulations made in it, does not in itself affect the credit rating. Similar resolutions have already been adopted by the European Parliament for some other countries that organize problematic elections. One of them is Turkey. Although the European Parliament expresses similar concerns about the regularity of elections in Turkey, in the ratings of credit agencies, such views are not relevant, especially if the opposition accepts the results and eventually enters the assembly (accepts mandate verification). Turkey, for example, currently has a B status according to Fitch, but not because of disputed elections, but because of high inflation, frequent interference of the executive power in the work of the central bank (which destabilizes public policy) and a complicated geopolitical situation.
In a similar way, the latest Fitch report for Serbia, dated February 9, 2024, looks at criticism of Serbia regarding election irregularities. The report indicates that the last parliamentary elections strengthened the power of the Serbian Progressive Party, and that despite criticism, the electoral victory of the SNS led by Aleksandar Vučić guarantees that there will be no change in the country's public policy. The government's commitment to economic growth, fiscal responsibility and EU integration efforts remains firm, which suggests stability and continuity in Serbia's macroeconomic policies and strategic goals.
What if, however, some of the demands proposed by the Resolution are accepted or the sanctions foreseen are implemented? Potentially, this can affect the three factors that are typically looked at when making a credit rating assessment. These are economic, fiscal and political factors. In order for the status of a country to deteriorate, all three should deteriorate moderately or at least one should deteriorate strongly and the others should remain the same. Some of the factors that fall into the first two groups are recession, inflation, large public debt (which is difficult to repay), large budget deficit (which cannot be reduced), etc. The IMF often helps in assessing these factors, which currently assesses the situation in Serbia as favorable. In the last assessment of December 21, 2023, the IMF concludes that, despite global challenges, the Serbian economy is recovering. The inflation rate is getting lower, fiscal consolidation continues, the current account deficit is decreasing, and foreign exchange reserves are growing. According to this assessment, the budget for 2024 is fiscally responsible. Investments in infrastructure and improving the work of public companies in the energy sector are welcomed. The program is considered to be meeting its objectives and improving fiscal stability and growth prospects.
Could the Resolution destabilize the political situation in Serbia if its main demand that the government allow research missions is accepted? It typically includes political stability (regular political process, which takes place through institutions), management and continuity of public policy. The resolution cannot call into question these aspects because it demands that the Government of Serbia accept independent research missions that would determine whether there were manipulations in the previous republican and Belgrade elections. However, the Resolution actually only appeals; documents of the European Parliament do not have legally binding force over the institutions of Serbia. It remains for the Government of Serbia to accept or not to accept the research missions, and it no longer has a reason to accept them since the opposition entered the assemblies and accepted the verification of the mandate. The chances of the missions being accepted were higher if the opposition managed to destabilize the political situation. Let's say, the chances were the highest on the evening of December 24th. Today they are very small. This was the case in 1997, when the opposition protested in the street for three months due to election irregularities. The government of Serbia accepted Filipe Gonzalez's research mission because it had a problem that would not go away from the streets. Today's government has no such problem.
However, even if the Government of Serbia were to accept this mission, the question is whether it could lead to political destabilization. The mission can come and find irregularities, and then the Government organizes new elections, which can be held under fair conditions. In that case, destabilization can be avoided if everyone accepts the results of the repeated elections.
If, on the other hand, a research mission ever occurs, and then there is a disagreement between the government and the mission about what happened, that is, the mission finds irregularities that the government does not want to remove, the European Union can deny the funds that belong to Serbia according to its budget in within the framework of IPA funds (funds that the country in the EU accession process uses for institutional reforms). Here we return to the economic and financial factors, which in that case could receive a slightly different (negative) rating. Details can be discussed if it comes to that.
The author is a professor at the FPN in Belgrade
In the night between Friday and Saturday, Iran targeted central and southern Israel, Tel Aviv retaliated with strikes on missile positions. Israel claims the strikes killed a senior Iranian commander responsible for funding and arming Hamas before October 7, 2023.
Students forgot about physics. Especially the Second Law of Thermodynamics which says: if there is a vacuum in the system, particles from the area of higher concentration will spread to fill the space. They forgot that there are no political protests, not even student ones, without political content
Who is it: arrogant, arrogant, scoundrel, duplicitous, fool, hochstapler, liar, conceited, uneducated, deceiver, treacherous, swindler...
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