Macro: COVID-19 Update Serbia: EUR 5.1 bn stimuli to aid economy in Covid-19 crisis

During April the Serbian economy was almost entirely in lockdown. As the number of infected people started to stagnate, the government initiated gradual relaxation of the restrictions from April 21 onwards. At the beginning of April the government delivered a EUR 5.1 bn (11.1% of GDP) fiscal stimulus package to support employment and liquidity in the real economy. This included tax deferrals, guaranteed loans, direct payments. The programme will be funded via commercial banks, Eurobonds, local bonds and loans from IFI's.
A monetary stimulus was also used to support the economy. The NBS cut the rate twice, from 2.25% yoy to 1.50%. Further, NBS introduced debt moratorium for all customers for three months, while intensifying FX swaps to support bank liquidity. Exchange rate stability was completely preserved. Further key rates are likely in the pipeline, towards 1.0%.
Currently we expect a deep recession, although the monetary and fiscal stimuli combined with the fact that the economic model is less dependent on the sectors that are hit hardest by the crisis, will help avoiding a more severe recession scenario. The agricultural sector and the planned infrastructural projects will prevent an even worse economic downturn.
Exports will decline more prominently, and together with the expected FDI drop will leave the real economy without funds for a new investment cycle.
We expect a deterioration of fiscal ratios, though they are justified given the support measures. The budget will move into a deficit and the ratio of public debt to GDP will move upwards. In early May, S&P affirmed Serbia's sovereign rating at BB+ despite the COVID-19 pandemic but changed the outlook from positive to stable.

This Research was produced and first published by Raiffeisen Bank International AG which is supervised by the Austrian Financial Market Authority and the National Bank of Austria.