World Bank-Serbia Partnership

A girl at a local market in Serbia. The overarching goal of the World Bank's seven-year engagement strategy with Serbia is to support the country in creating a competitive and inclusive economy and, through this, to promote its integration into the EU. Photo by: photos.de.tibo / CC BY-NC-ND Serbia slipped into another recession in 2014, its third in a span of six years. Structural constraints such as delayed privatization of state-owned enterprises, nonreformed public enterprises and a poorly performing banking sector prevented the economy from recovering. As a result, the standard of living has been declining. The 2012 European Union-Survey of Income and Living Conditions reveals that relative poverty in Serbia increased at 24.6 percent post-crisis which is significantly higher compared to other EU member countries. Meanwhile, unemployment rates remain high, particularly among the youth. To achieve sustainable and inclusive growth, the main challenge for the western Balkan country involves transitioning from a state-dominated economy to one led by the private sector and from a consumption-based growth model to export-led. The government of Serbia with President Tomislav Nikolić and Prime Minister Aleksandar Vucic at the helm launched its three-year fiscal strategy and National Economic Reform Programme 2015-2017 which emphasizes structural reforms necessary to achieve fiscal sustainability and to create an enabling environment for investment and job creation. The World Bank recently approved the Country Partnership Framework 2016-2020 for Serbia to complement the government’s efforts. It is also based on the results of the bank-led strategic country diagnostics which calls to address issues on fiscal unsustainability, limited administrative capacity, and structural inadequacies and inefficiencies. The CPF comes at an opportune time and covers the five-year time frame that Serbia has set for being ready to join the EU. Funding level and priorities The State Union of Serbia and Montenegro assumed membership in the World Bank in 2001. Five years later, Serbia proclaimed its independence and as the successor state to the union, continued to be a member of the bank. Montenegro, on the other hand, had to re-apply its membership. Serbia has access to International Bank for Reconstruction and Development, International Finance Corporation and Multilateral Investment Guarantee Agency. Currently, IBRD supports eight projects amounting to $1.2 billion and MIGA supports seven projects with a gross exposure of $860 million. IFC, the bank’s private sector arm, has an investment portfolio in Serbia amounting to $417 million in 25 projects. International Development Association has since disbursed $682.2 million. However, all IDA-funded projects had already closed in 2013. Shown on the table below are World Bank Group’s commitments to Serbia from 2012 to 2020. The overarching goal of the new framework is to support Serbia in creating a competitive and inclusive economy and, through this, to promote its integration into the EU. The CPF consists of two focus areas encompassing eleven objectives. Focus area 1: Economic governance and the role of the state – The bank aims to address the bottlenecks in economic governance specifically in the size and management of budget, scope and capacity of the administration to implement its reform agenda and deliver public services, the footprint of the government in the economy, and the performance of public utilities. Five objectives have been identified in this focus area: Objective 1a: Supporting sustainable public expenditure management Objective 1b: Assist in creating a more effective public administration and improving select service delivery Objective 1c: A more efficient and sustainable power utility Objective 1d: More efficient public transport companies Objective 1e: Productive SOE assets transferred to private ownership Focus area 2: Private sector growth and economic inclusion – The bank will prioritize addressing the issues on private sector development and economic inclusion such as financing, investments, connectivity, and labor markets constraints. The bank will pursue six objectives under this area: Objective 2a: Contribute to priority business climate improvements Objective 2b: Assist in creating a more stable and accessible financial sector Objective 3b: Support development of more efficient land and property markets Objective 2e: Reduce barriers to labor market participation Objective 2f: Assist in closing medium and long-term skill gaps Due to the vulnerability of the country to natural disasters and impacts of climate change, the World Bank will prioritize climate change and disaster risk management as a crosscutting theme of the CPF. Over the next five years, IBRD will provide an indicative resource envelope amounting to $1.6 billion, while IFC committed to finance up to $600 million. Below are the pipelines/proposed lending programs for 2016-2020. These projects will be supplemented by analytical advisory services and technical assistance. Devex Analysis There are several risks involved in implementing the CPF program such as the continuing macroeconomic imbalances, institutional weakness of agencies involved, and natural disasters and other environmental risks. Fully aware of these risks, the Serbian government is working towards mitigation and the World Bank will provide significant assistance to support the government’s efforts on this. As such, the bank signed a three-year stand-by agreement with the International Monetary Fund to minimize macroeconomic risks. To address institutional weakness, the bank will provide capacity support through trust funds, technical assistance and more targeted capacity assistance in the new IBRD lending. Use of government structures during implementation will be encouraged to promote sustainability. Serbia’s is forecasted to have a 0.5 percent negative growth for 2015, however, the World Bank remains positive that it will be able to recover in the next few years. The current reform momentum will help the country to generate growth. The bank has pledged to maximize the synergies of IBRD, MIGA and IFC to support the government’s reform agenda and, at the same time, promote its twin goals of eliminating poverty and boosting shared prosperity. Contact World Bank – Serbia Country Office Tel: (381-11) 30-23-700 Email: