Economic Reform Programme for the Period 2018-2020
Total Page:16
File Type:pdf, Size:1020Kb
| 1 Government of the Republic of Serbia Economic Reform Programme for the Period 2018-2020 | 2 Table of Contents I FRAMEWORK AND MAIN GOALS AND GUIDELINES OF THE ECONOMIC POLICY ............ 3 II MEDIUM TERM ECONOMIC FRAMEWORK ...................................................................................... 5 1. Forecasts for the International Economic Environment ------------------------------------------------------------- 5 2. Current Economic Trends and Outlook for 2017 --------------------------------------------------------------------- 7 3. Medium-Term Macroeconomic Scenario ---------------------------------------------------------------------------- 12 4. Alternative Scenarios and Risks --------------------------------------------------------------------------------------- 22 III FISCAL FRAMEWORK FOR THE PERIOD FROM 2018 TO 2020 .................................................. 24 1. Medium-term Fiscal Policy Goals ------------------------------------------------------------------------------------- 24 2. Fiscal Trends in 2017 ---------------------------------------------------------------------------------------------------- 25 3. Fiscal Projections in the Period from 2018 to 2020 ---------------------------------------------------------------- 33 4. Cyclically Adjusted Fiscal Balance ----------------------------------------------------------------------------------- 42 5. Public Debt Management ----------------------------------------------------------------------------------------------- 45 6. Sensitivity Analysis and a Comparison with the Previous Programme ---------------------------------------- 47 7. Institutional Framework ------------------------------------------------------------------------------------------------- 58 IV STRUCTURAL REFORMS IN THE 2018–2020 PERIOD .................................................................... 61 1. Identification of Key Obstacles to Competitiveness and Inclusive Growth ----------------------------------- 61 2. Structural reforms summary -------------------------------------------------------------------------------------------- 63 3. Analysis by area and structural reforms ------------------------------------------------------------------------------ 68 3.1 Area PUBLIC FINANCE MANAGEMENT ....................................................................................................................................68 3.2 Area ENERGY AND TRANSPORT MARKET REFORM .............................................................................................................72 3.3 Area SECTORAL DEVELOPMENT ...............................................................................................................................................81 3.4 Area BUSINESS ENVIRONMENT AND REDUCTION OF THE INFORMAL ECONOMY .......................................................87 3.5 Area RESEARCH, DEVELOPMENT AND INNOVATION, AND DIGITAL ECONOMY ..........................................................98 3.6 Area TRADE-RELATED REFORMS ............................................................................................................................................103 3.7 Area EDUCATION AND SKILLS .................................................................................................................................................107 3.8 Area EMPLOYMENT AND LABOUR MARKET ........................................................................................................................110 3.9 Area SOCIAL INCLUSION, POVERTY REDUCTION AND EQUAL OPPORTUNITIES ........................................................115 V BUDGET IMPLICATIONS OF STRUCTURAL REFORMS ............................................................. 118 VI INSTITUTIONAL ISSUES AND STAKEHOLDER INVOLVEMENT ............................................. 119 VII ANNEXES .................................................................................................................................................. 121 Table 10. Budgetary Implications of Structural Reforms ......................................................................................................................121 Table 11. Planned schedule for implementing the structural reforms ...................................................................................................125 Table 12. Report on Implementation of Priority Structural Reforms (PSR) from ERP 2017-2019 .......................................................136 Annex 1. Consultations with civil society representatives and other stakeholders ................................................................................169 Annex 2. List of Institutions Participating in the Preparation of ERP ...................................................................................................173 Annex 3. Implementation of Recommendations to Serbia from the Economic and Financial Dialogue between the EU Member States and the Western Balkans and Turkey from May 2017 ..........................................................................................................................174 | 3 I FRAMEWORK AND MAIN GOALS AND GUIDELINES OF THE ECONOMIC POLICY Preserving Fiscal Stability and Supporting Growth The Republic of Serbia is successfully completing the implementation of a three-year fiscal consolidation programme through the Precautionary Stand-By Arrangement with the International Monetary Fund (hereinafter: IMF). At the end of 2014, the government deficit was 6.6% of the gross domestic product (hereinafter: GDP), while the government debt amounted to 71.8% of GDP with a rising trend. We were faced with two paths, one leading to total destabilisation of public finances and public debt crisis, while the other involving the implementation of difficult but necessary measures for the recovery of government finances. The results achieve in the implementation of the programme are impressive. The original goal for required structural adjustment of 4% of GDP is significantly exceeded. In the last three years, a lasting improvement of results of about 6% of GDP has been achieved. Public debt started on a downward path in 2016, a year earlier than envisaged by the Programme. The priority in the following medium-term period is to preserve the accomplishments in the fiscal area achieved as a result of hard effort, while supporting the initiatives that should boost growth, such as an increase in public investment and decrease of the tax burden for low-income employees. Macroeconomically Sustainable and Inclusive Growth of the Economy The measures of fiscal relaxation will have a two-pronged effect. Reducing the burden on the economy, through the increase of personal tax allowance, will encourage growth and job creation, while the growth of pensions and wages in a part of the public sector will strengthen the purchasing power of households and boost domestic demand. A stable inflow of foreign direct investments (hereinafter: FDI) coupled with support to innovation activities is another way to bolster sustainable growth, while the educational system reform, support to social entrepreneurship, gender budgeting, the minimum cost of labour increase are just some of the measures that should ensure inclusive and fairly distributed growth ultimately resulting in the reduction of poverty. The macroeconomic policy-making is focused on building the institutional framework and removing the barriers to growth. Successfully implemented activities in the previous period are reflected in increased efficiency of the public administration, improvement of legislation, greater labour market flexibility, better external position of the country, rising FDI inflow, and specific support to the sector of small and medium sized enterprises. The key prerequisites for the achievement of the planned medium-term scenario remain to be maintaining fiscal stability, continued restructuring of the economy (particularly the public sector part), further improving the business environment, expanding and modernising production capacities, primarily in the tradeables sector, as well as maintaining the continuity of convergence with the European Union (hereinafter: EU). The EU Accession Process In addition to the establishment of an institutional framework and strengthening of the administrative capacity, which should ensure and assure democracy and the rule of law, the European integrations process also implies the creation of a stable macroeconomic environment, development of a market economy and strengthening its capacity to respond to the challenges of competition in the | 4 EU. The Government’s strategic commitment to becoming full member of the EU, and the progress towards accomplishing this goal were attested by the opening of new negotiating chapters in 2017. The beginning of the year saw the opening of Chapter 20 – Enterprise and industrial policy and Chapter 26 – Education and culture, which was temporarily closed. In mid-2017, Chapter 7 – Intellectual property law and Chapter 29 – Customs union were opened. In December, two additional chapters on Company law (Chapter 6) and External relations (Chapter 30) were opened. Regular political and economic dialogue on open issues from the Stabilisation and Association Agreement between the European Communities and their Member States, of the one part, and the Republic of Serbia, of the other part, adoption of the Economic Reform Programme for the period 2017–2019, Employment and Social Policy Reform Programme, revised National