Purchasing Power Limits Growth of Serbian Economy

The meeting of international informal group of independent business consultants who follow macroeconomic trends in Southeastern Europe concluded that low purchasing power of Serbian citizens will be an important limiting factor for the growth of Serbian economy by 2025.

Meeting in Szeged, Hungary, gathered 74 independent business consultants from 22 European countries and 6 guests from Asia and Africa. The main topic of the meeting was the „Preconditions for sustainable growth of Eastern and Southeastern Europe“. During the meeting, BSN representatives presented their views on the state of the economies in the region.

After large number of in-depth analyses and discussions it was concluded that Serbia, together with Macedonia, Bosnia and Herzegovina, Albania and Montenegro still faces numerous challenges in reform of business climate and creation of better preconditions for the development of free entrepreneurship. Certain progress is encouraging, but economic growth in all these countries is still shaky, as it entirely depends on political factors and will.

While in the previous years Montenegro and Macedonia stabilized their economic growth on average level of 4% (Montenegro), and 3% (Macedonia), Serbia, Bosnia and Herzegovina and Albania are still in the zone of significant risk, as their economic parameters largely depend on the influx of foreign direct investments, firm control of public sector and public enterprises, increase of state capital investments in infrastructure and in-depth reform of bureaucratic barriers.

Special problem in these countries is the fact that 40-50% of their GDP is created in public sector, public enterprises and companies majorly owned by the government, and the slightest lack of political control over them is enough to severely hamper good results created by the private sector. These countries have to continue with the reduction of their public spending and public sector’s share in total economic activities, and professionalize public services and companies.

Another important issue in Serbia highlighted at the meeting was that after taking into account the high taxes and contributions on income, as well as VAT and other taxes on goods, average citizen has only 140-220 EUR per month to cover living expenses. That is the main reason why many large foreign companies do not wish to invest in the local market, as the low purchasing power of the population is the main barrier for their products and services to be sold in sufficient amounts to make their business sustainable. Unless the purchasing power is increased, there is a danger of further brain drain from Serbia, which will cause problems for companies already present as investors, which export their products to the EU and other markets. Serbian government needs to put an effort into facing this issue and relax employers and employees of these high fees, and thus enable increase of purchasing power, reduce migrations of expert workers and enable new investments.

Joint conclusion of the meeting and message to the developing countries of Southeastern Europe is that small and impoverished countries need to have small, highly effective and efficient public sector, which will be led by professionals. This will enable reduction of public spending, and in turn create space for reduction of taxes and parafiscal demands imposed on the private sector, which would accumulate funds, increase income from export of products and services, increase wages and purchasing power and living standard in these countries. That is why governments need to be courageous and not deal with populism and cheap promises, but rather to create and conduct long-term reforms.