Q:
A:
Serbia’s credit rating upgraded
Belgrade,
18 March 2017
The Ministry of Finance stated that the ratings agency Moody’s Investors Service has upgraded the government of Serbia’s issuer rating from B1 to Ba3 and has also raised Serbia’s long-term foreign-currency and local-currency bond and deposit ceilings.
As assessed by Moody’s, the key drivers of the upgrade are the results of fiscal consolidation, implementation of structural reforms, better than expected economic growth outlook and ensured price stability, as well as improvements in the institutional framework and progress with the EU accession process.
According to Moody’s, the successful fiscal consolidation has led to the first primary budget surplus since 2005, reversing the upward trend of the public debt to GDP ratio.
The fiscal deficit reached 1.4% of GDP, far below the 4% target and the quantitative performance criterion set out in the arrangement with the IMF.
Moody’s expects a gradual further reduction in fiscal imbalances and the public debt share in GDP, benefiting from improvements in tax collection and a reduction in the public wage bill as a percent of GDP, despite budgeted wage increases in a part of the public sector this year.
Moody’s assesses that the implementation of structural reforms helps increase the resilience of the Serbian economy to shocks, noting that external vulnerability is expected to remain low.
The current account deficit narrowed further in 2016, to around 4% of GDP. It is expected to decline in the years to come and to remain fully covered by FDIs.
Other drivers of the upgrade of the issuer rating include the opening of eight negotiating chapters under the EU accession process, improved government effectiveness and regulatory quality.
Upward pressure on Serbia’s rating could arise from more favourable medium-term growth prospects, resulting from structural reforms and improvements in the investment environment, as well as faster than expected narrowing of fiscal imbalances.
According to Moody’s, the successful fiscal consolidation has led to the first primary budget surplus since 2005, reversing the upward trend of the public debt to GDP ratio.
The fiscal deficit reached 1.4% of GDP, far below the 4% target and the quantitative performance criterion set out in the arrangement with the IMF.
Moody’s expects a gradual further reduction in fiscal imbalances and the public debt share in GDP, benefiting from improvements in tax collection and a reduction in the public wage bill as a percent of GDP, despite budgeted wage increases in a part of the public sector this year.
Moody’s assesses that the implementation of structural reforms helps increase the resilience of the Serbian economy to shocks, noting that external vulnerability is expected to remain low.
The current account deficit narrowed further in 2016, to around 4% of GDP. It is expected to decline in the years to come and to remain fully covered by FDIs.
Other drivers of the upgrade of the issuer rating include the opening of eight negotiating chapters under the EU accession process, improved government effectiveness and regulatory quality.
Upward pressure on Serbia’s rating could arise from more favourable medium-term growth prospects, resulting from structural reforms and improvements in the investment environment, as well as faster than expected narrowing of fiscal imbalances.
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