The rating agency Fitch has reaffirmed in its report Serbia’s credit rating as BB + (stable outlook) with prospects for its further increase, the Serbian Ministry of Finance has announced.
Serbia’s ratings are supported by its relatively good economic performance compared with rating peers, and a policy response that Fitch expects to help generate a firm recovery from the pandemic shock.
Resilience to the coronavirus shock is also supported by Serbia’s minimal exposure to tourism and the positive impact of lower energy prices. Governance, human development indicators, and GDP per capita compare favourably with the ‘BB’ outlook. Set against these factors are Serbia’s higher public debt, a greater share of foreign-currency-denominated debt, and higher net external debt – Fitch says.
Fitch forecasts GDP will drop 2.2% in 2020, following growth of 4.2% last year and less than the projected contraction of 4.8%.
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The government’s fiscal response to the impact of the pandemic totals close to 8% of GDP this year and Fitch forecasts the general government deficit increases to 8.1% of GDP in 2020, from 0.2% in 2019. The large majority comprises deferred employment tax, wage subsidies and additional healthcare spending will all expire in 2020 (with the exception of healthcare pay rises totalling 0.4% of GDP).
The coronavirus shock and absence of a full government since May has set back the already limited reform momentum, and there have been delays to the introduction of a new public sector wage system and fiscal rules.
EU accession progress has remained slow, with no new chapters opened over the last year. The most problematic areas continue to relate to the rule of law, and Fitch expects a long delay to the 2025 target date.
Also, Fitch underlines that a healthy and preserved banking sector has significantly helped to absorb the shocks caused by the coronavirus pandemic – low inflation and exchange rate stability have been maintained, as well as the level of foreign exchange reserves.
Thanks to the joint efforts of the Government of the Republic of Serbia and the National Bank of Serbia, as well as the adopted comprehensive package of monetary and fiscal policy measures, which includes, among others, wage subsidies, a moratorium on loan repayment, interest rate cuts and liquidity support measures for the corporate sector, the effects of the pandemic-related crisis in Serbia have been significantly mitigated – Fitch concludes.
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