The World Bank has launched a new advisory project to support Serbia build further resilience against fiscal risks and reduce the country’s vulnerability to financial and economic shocks. The project will assist the Ministry of Finance in strengthening legislation and institutions to better manage fiscal risks.
It will work with the ministry to develop risk models and tools, as well as strengthen technical capacity at both the ministry’s Fiscal Risks Monitoring Department and the local governments it works with. The project is an initiative of the World Bank’s Government Debt and Risk Management (GDRM) program, which is funded by the Swiss State Secretariat for Economic Affairs (SECO).
Over the past 15 years, Serbia has experienced multiple fiscal risks that have impaired the economy, including the global economic crisis of 2008, the bankruptcy of several commercial banks, the disastrous floods of 2014, multiple bail-outs of state-owned-enterprises, and, now, the global pandemic.
“Each fiscal risk which materializes is a burden on the central government’ budget and fiscal position, therefore a functioning monitoring system is key for maintaining stability of public finances,” said Branimir Gajić, Assistant Minister of Finance – Fiscal Risk Monitoring Department, Serbia.
“Therefore, in March 2019, we established a Fiscal Risk Monitoring Department to analyze and manage fiscal risks and we advocated for the establishment of this new Fiscal Risk Project under the GDRM program umbrella to further enhance technical capacity.”
The 2014 floods, for example, caused significant damage and economic losses to businesses, farms, schools, health care facilities, homes, and crucial infrastructure— estimated at €1.7 billion, or 4.8 percent of Serbia’s gross domestic product (GDP). In addition, an estimated €1.3 billion was needed to cover emergency responses and reconstruction in the aftermath of this disaster.
“The current COVID-19 pandemic has once again demonstrated the need to closely monitor various fiscal risks and have mitigation strategies in place,” said Stephen Ndegwa, World Bank Country Manager for Serbia.” The new Fiscal Risk Project will be part of the reforms to bring the Serbian economy back to sustained growth.”
Given the launch of this new advisory project in Serbia, SECO is now increasing the budget of the GDRM Program by $1.5 million.
“Identifying fiscal risks and managing them in a proactive manner, through risk reduction measures, insurance, and other means, helps governments save public funds and better protect its citizens,” said Rosmarie Schlup, Head of the Macroeconomic Support Division at SECO. “We look forward to partnering with the Government of Serbia and the World Bank on this important project.”
The GDRM Program provides customized technical advisory services to middle-income countries, which are home to 75 percent of the world’s poor. Governments in these countries often face a unique set of fiscal challenges. They must finance the budget at the lowest possible cost, often with limited human and technical resources. The GDRM program helps them develop sustainable debt and risk management foundations to reduce vulnerability to financial shocks.