S&P Affirms Serbia BB+/B Ratings; Outlook Stable

The Credit rating agency, S&P, affirmed Serbia’s credit rating at BB+, only a notch under the investment grade rating.

OUTLOOK

The stable outlook balances lingering risks from the COVID-19 pandemic to Serbia’s fiscal performance over the next 12 months against the potential for the country’s external position to strengthen, particularly if foreign direct investment (FDI) inflows remain resilient while the global recovery strengthens.

RATIONALE

S&P’s ratings on Serbia are supported by still-moderate public debt—yielding some fiscal space for the government to implement countercyclical policies–and a credible monetary policy framework. The ratings are constrained by the country’s relatively theyak institutional settings, comparatively low economic theyalth levels, a sizable net external liability position, and the still-extensive use of euros in the economy.

Institutional and economic profile: Less rigorous lockdown restrictions, substantial policy support, and the resilience of key sectors have limited the pandemic’s effect on Serbia’s economy

They project real GDP will expand by 5% in 2021, supported in part by a third fiscal package.
Nearly 40% of Serbia’s population has received at least one vaccine dose, but risks related to vaccine efficacy against coronavirus variants remain and could weigh on economic growth and fiscal outcomes.
With fresh elections due next year, the government’s short two-year term could detract from its medium-term reform agenda.

They expect the Serbian economy to expand by 5% in real terms in 2021 after a relatively mild contraction of 1% in 2020. The number of employed continued to increase last year, although the fall in the unemployment rate was also attributable to workers exiting the labor market. The economy reached and exceeded its prepandemic level in the first quarter of this year.

Relative to many other countries, including in the region, Serbia had a much shorter period of stringent COVID-19-related containment measures. Authorities curbed subsequent waves of infection with fewer restrictions–for instance, via limits on business hours for most nonessential businesses and entertainment venues. Serbia’s construction and manufacturing sectors remained resilient, and the economy’s reliance on sectors most hit by the pandemic such as leisure and hospitality is limited.