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Serbs Unveil Spending Spree to Fuel Growth, Catch Up With EU

Gordana Filipovic and Misha Savic

(Bloomberg) -- Serbia will spend almost 14 billion euros ($15.7 billion) through 2025 as the government seeks to double the rate of economic growth, bringing it into line with the European Union and raising living standards.

The new investments were announced as the Balkan nation heads for general elections in late April or early May, and President Aleksandar Vucic is eager to depict Serbia as a desirable place to live while trying to stem a demographic outflow. The economy remains smaller than in 1990, the last year before the bloody breakup of the former Yugoslavia, according to a World Bank report earlier this month. The economies of Serbia’s central and eastern European peers are now on average 80% larger.

The program, drawn up with the World Bank’s assistance, focuses on developing energy infrastructure, roads and the agricultural sector. The government is allocating money for housing subsidies for young families to help shore up falling birth rates. It’s also offering incentives for employers to hire and to spur some of the hundreds of thousands of people who left the country in the past decade to return home and set up businesses.

“We are doing this because we want young people to stay here, to have more children and a better future,” Vucic told reporters in Belgrade. Growth this year will reach 4%, beating forecasts, while the dinar will be stable in coming years in a range “from 117 to 120” dinars to the euro, he said.

Vucic pledged to raise average wages to more than 500 euros a month as soon as 2020 and 900 euros in 2025, as public sector pay increases and the rising number of manufacturing and construction jobs ends the current labor shortage. The central bank also plans to help the economy by managing the dinar exchange rate.

The president’s party is riding high in opinion polls despite multiple allegations of high-level corruption and as opposition politicians cry foul over deteriorating standards of democracy, media freedom and the rule of law. Another challenge he faces is a potential deal to recognize Kosovo’s 2008 secession. Most Serbs oppose an agreement that would acknowledge the loss of what they consider their historic heartland.

To help raise average annual growth to 7% from about 3.5% this year, the World Bank advised Serbia to expand access to financing for startups and small- and medium-sized firms, revise school programs to enhance job skills, refrain from anti-competition measures and improve services for the population. Only half of Serbian citizens are satisfied with government services now, a similar level to Central Asian countries, according to the lender’s report.

Serbia also needs to deepen financial sector reforms, improve labor skills, strengthen competition and make its government more effective, according to the World Bank. That level of expansion, if sustained over a decade, could help Serbia catch up with some EU countries, the international lender said.

The spending spree will be financed mostly by bond sales, along with funds from the budget and bilateral loans. It will also include a maiden green bond as Serbia targets pollution, among the costliest requirements on its path to the EU, Finance Minister Sinisa Mali said in an interview this week.

(Updates with comments from president in fifth paragraph.)

To contact the reporters on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net;Misha Savic in Belgrade at msavic2@bloomberg.net

To contact the editors responsible for this story: Andrea Dudik at adudik@bloomberg.net, James Amott, Andrew Reierson

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