Despite considerable reform efforts and the fundamental restructuring of a nationalized, regulated and strongly slumped economy into a modern market economy, Serbia is still facing fundamental structural problems after a decade, which threaten economic and budgetary stability.
The public sector in Serbia is still too big. Several hundred companies are not privatized or caught up in what is known as restructuring. These employ around 100,000 workers, most of whom are not qualified to produce for the market. At the same time, the employment rate in the public sector remains extraordinarily high at 40 percent. With a 30 percent higher average wage level in the public sector than in the private sector, there are strong distorting effects. The fact that the majority of these public companies continuously produce losses, which have to be offset by state subsidies, means an enormous burden on the state budget. So the 514 caught in the so-called restructuring,
According to politicsezine, the poor condition of the infrastructure is a structural problem for state-owned companies and the private sector. The transport network is out of date, in particular the rail network and the road network have practically not been modernized for 20 years, and investment projects in renovation and expansion are just beginning. The energy sector is in urgent need of reform. The traditionally low energy prices for the economy, but also for private households, push them below the profit level, at the same time the industry is designed for energy-intensive forms of production and not for energy efficiency. In addition, there are no reforms in the future sectors of research and education.
At the same time, the institutional and bureaucratic conditions for private sector activity are still disadvantageous. After rising from 95th to 86th place in the World Bank’s Doing Business Index in 2012, Serbia fell back to 93rd place in 2013. Certain progress has been made in recent years. In the ranking for 2016, Serbia achieved 58th place with a changed methodology of the index (comparable to 81st place according to the old method). In the ranking for 2019, Serbia rose to 43rd place (66th place according to the old method). The main problems continue to be high bureaucratic hurdles and approval procedures as well as a lack of competition protection.In 2018, Serbia fell back to 48th place in the World Bank ranking. The country achieved above-average values in the areas of business start-ups, building permits and cross-border trade; The values in areas such as connection to the power grid, the tax system and the (legal) enforceability of contracts were well below average.
Another central problem is the weak legal system and systemic corruption. In the ranking by Transparency International, Serbia took 77th place in 2017, and in 2018 it fell dramatically to 87th place (out of 180 countries). It is still difficult or even impossible for actors in the private sector to get their rights through the courts.
The shadow economy in Serbia traditionally accounts for a share of the total economic volume that is one of the highest in Europe. In 2012, according to international standards, 30 percent of Serbia’s gross domestic product was generated by the shadow economy – with all the accompanying negative burdens on public budgets and social systems. Despite various measures taken by the Serbian government, which has been led by the SNS since 2012, especially since 2015, according to analyzes by leading Serbian economists, the shadow economy has not shrunk, but has even grown slightly compared to 2012. The main reasons are above all the inefficiency and lack of political independence of the tax authorities, the tax amnesties regularly issued by the government and the weakness of the legal system.
Another unsolved structural problem is high unemployment and the unfavorable employment structure. At the beginning of 2012 the unemployment rate was officially 25.5%, a drastic increase compared to 2008, i.e. before the economic crisis, when the rate was still 14%. Unofficially, the unemployment rate is much higher due to the hidden unemployment. Unemployment had fallen a good bit by 2015, to 17.7%. Youth unemployment is a particular problem with over 50%. In 2011 there were 1,732,000 employees in Serbia – of which, however, 130,000 were without pay and 400,000 employees only received the guaranteed minimum wage of 16,000 dinars (around 150 euros). This number compared to 753,000 unemployed and 1.69 million retirees in the same year. A related urgent problem is the reform of the outdated and financially unsustainable social systems. This applies to the health system on the one hand, but above all to the pension system on the other. The Serbian pension system produces the highest losses in the region and one of the highest in Europe, in 2010 the loss was 7.5% of GDP. Initial reform steps such as raising the retirement age have been taken. Various reform measures such as reducing pension levels for around 40% of recipients were able to bring the annual deficit down to below 3% of GDP by 2017. In view of the aging of Serbian society, however, a lasting stabilization of the pension system will only succeed through an economic policy.