Fitch Ratings has affirmed Serbia’s long-term foreign-currency issuer default rating (IDR) at ‘BB+’ with a stable outlook, it said.
“Serbia’s rating is supported by its credible macroeconomic policy framework, prudent fiscal policy, and somewhat stronger governance, human development and GDP per capita compared with ‘BB’ medians,” Fitch said in a statement on Friday.
Fitch also said in the statement: “Set against these factors are Serbia’s greater share of foreign-currency-denominated public debt and higher net external debt than peer group medians, as well as a high degree of banking sector euroisation. Exchange rate stability underpinned relative macroeconomic stability in 2022 despite the shock of the war in Ukraine, but geopolitical risks linger.
Fitch went on to say that Serbia’s FX reserves increased in 2022 to an all-time high of EUR19.5 billion at end-December, despite a sharp energy-driven deterioration in the current account balance, demonstrating resilience to the confidence shock from the war in Ukraine. The current account deficit widened to 7% of GDP in 2022 from 4.3% in 2021 almost entirely driven by a widening of the trade deficit caused by higher energy imports. This was fully financed by net FDI inflows and bolstered by funds from the UAE and a new IMF programme.
Touching upon the political situation in Serbia and its effect on the country’s economy, Fitch said the following in its report:” Approval of a new French/German proposal to stabilise relations with Kosovo would give impetus to EU accession talks. It could also ease pressures caused by Serbia’s neutral position on the war in Ukraine, although Serbia will remain reliant on Russian gas for at least another three years. Fitch considers that EU accession remains a key policy anchor for the government. Any agreement on Kosovo is necessary, but not sufficient, for progress given EU concerns about the rule of law. However, a more severe dislocation of the process could negatively impact foreign investment, although this is not our base case. Governance, as measured by the World Bank, is just below the ‘BB’ median.”
(eKapija, 19.02.2023)
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