Serbia 2016

Total score

57.31 change: 1.37

Quick facts

Population:
  • 7.132 million
Unemployement rate:
  • 18.5 %
GDP:
  • 34.213 billion EMU
GDP growth rate:
  • 0.7 %
GDP per capita:
  • 4 800 EMU

Score and comments

Political Freedom
Free and Fair Elections

Serbia held second consecutive snap parliamentary elections in April 2016, together with regular, time wisely, regional and local elections. Serbian Progressive Party (SNS), which called the elections in order to strenghten its position rather than to increase government efficiency, confirmed its current dominance by taking 131 seats in the parliament by their electoral fusion ticket. Although Serbia witnessed improving freedom and fairness of elections since the fall of the Milošević regime, these elections abound with irregularities. Serbia`s score will expectedly deteriorate in the 2017 Freedom Barometer publication. Abuse of authority and state resources for campaign activities, bribes and voter intimidation were an integral part of the electoral process, but the biggest problem

were unfair media coverage and vote counting process. Biased reporting in favor of the ruling party could be seen at the most broadcast media with national frequencies and in many printed media. All the opposition parties, despite all their differences, united on the ground of opposing the electoral fraud during the counting process. They held a rally in Belgrade, demanding a demise of the president of the National Election Committee and a recounting at all suspecious polling stations. Elections were repeated at 15 electoral booths. Once again, SNS formed a government together with the Socialist Party of Serbia (SPS), but this time they will have more, and to it more diverse, opposition parties in the parliamant, which could hold them more accountable for their actions.

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Absence of Unconstitutional Veto Players

There are no unconstitutional veto players in Serbia, and therefore decision making process is completely in the hands of the authorities. Executive branch dominates over judiciary and legislation in practice, thus undermines democratic procedures and system of checks and balances. Consequently, abuse of power and corruption among high ranking officials is common. Most actors are not held accountable for their actions. A case which brought the largest media attention was unlawful destruction of several private objects in the neighborhood called Savamala, where the Belgrade Waterfront project should continue to spread. While a lot of evidence emerged on the inadequate and suspicious reactions by relevant institutions, nobody was prosecuted or suspended up to date. Several scandals during

recent years drastically blurred influence of the Serbian Orthodox Church, which has serious history of interfering into politics.

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Freedom of Press

Serbia is among countries in which freedom of the press had the biggest decline in 2015, according to the Freedom House’s Freedom of the Press report. This is mainly due to intensification of political pressure on editors and journalists, and crackdown on investigative journalism. Following an article on the corruption in procurement, series of verbal attacks from the government, including by Prime Minister Aleksandar Vučić, and by the state-controlled media, was launched against the three major investigative journalism outlets, accusing them of being funded by the West in order to take down the government and destabilize the country. Many journalists have been fired and many political and investigative broadcast programs were canceled, mainly due to their critical note in reporting

on the ruling elite. Non-transparent process of issuing broadcast licenses, dimly ownership of media outlets and biased funding remain very important obstacles to media freedom. All of the above mentioned, followed by the large number of physical and verbal attacks and poor job conditions, have enhanced the practice of self-censorship among journalists. The privatization process of government-owned media outlets ended in December, with 34 out of 73 having been bought by private investors.

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Rule of Law
Independence of the Judiciary

The situation in judiciary is not improving. It remains the most important stumbling block for the rule of law, while the lack of the latter is the most important obstacle to freedom in Serbia. Courts are slow, inefficient, unpredictable and often under pressure or corrupted. Thereby, political pressure on courts (rather not to do than to do something) is merely a tip of an iceberg. Outside influence on police and prosecutors is even stronger. Their willingness to react and their efficiency highly depend on the hints which they get from the executive branch of power. The most drastic among such cases is the Savamala incident as of 25 April 2016. The (still unnamed) perpetrators of the illegal night-time vigilante demolition of the (allegedly illegally built) buildings in this neighborhood

in central Belgrade were, by all accounts, inspired by the Mayor and/or by his close aides, and were (passively) assisted by communal and national police. Yet no visible legal action to prosecute anybody has been made so far. The new Minister of Justice, who emerged from the snap general elections as of 24 April 2016, has promised a brand new reform of the judiciary. While she is coming from within the Ministry, it is to be expected that recently drafted strategies in the field will not be simply brushed away and rewritten but critically evaluated and then implemented.

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Corruption

Current popularity of the PM Aleksandar Vučić still owes much to the hopes for a corruption-free country, which he awoke in 2012. But since then, Serbia has de facto stagnated in its fight against corruption. Compared to the-then score in the Corruption Perception Index (39), it roughly stayed where it had been – e.g. in 2015, CPI score was 40 and the ranking 71 of 168. Government goals meanwhile became more realistic, acknowledging that the anti-corruption struggle will be long, expectedly resulting in putting corruption under control and seriously limiting it. Some of the meanwhile adopted laws, such as on the maximum deadlines for issuing construction permits, or on the protection of the whistleblowers, have started producing results – for instance, there was a landmark case of a

whistleblower returned to work after initially being fired for reporting corruption. But the anti-corruption struggle lacks strategic approach. Transparency Serbia noted that only 14% of the government`s strategic anti-corruption activities scheduled for 2015 were implemented. The strong political control over the entire public sector, including public-owned companies, is the biggest catalyst of high corruption. As for petty corruption, Transparency International`s Global Corruption Barometer 2016 showed that traffic police, health services and officers issuing official documentation were affected by corruption more than others. For instance, 31% of all those citizens who had dealt with the traffic police during the previous 12 months reported giving bribes. Only 1% of the estimated annual total of 375.000 cases of bribing in Serbia are ever reported.

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Protection of Human Rights

In their report Nations in Transit 2016, Freedom House noted that Serbia`s democracy continued along its “modestly negative trajectory observed in 2014”. Meanwhile, the state of human rights varied from one aspect to the other. Domestic violence is still an important challenge to personal safety, in spite of the government and NGO activities to curb it, or of increased societal stigma against beating women or children. Secular principles are often breached, primarily to the advantage of the biggest church SPC, or occasionally of other “traditional” religious communities. Two separated Islamic communities are still on the road to reunion, following their government-sponsored split as of 2007. Bosniak and Hungarian ethnic minorities have obtained a strong leverage for the promotion

of their rights through participation in government at various tiers. But Romany also saw some small improvements, especially regarding inclusion. The LGBT community is witnessing the biggest improvement, seen through less hate speech in public, regular annual Pride marches in Belgrade and, in summer 2016, having for the first time a “come-out” lesbian (and former reputable NGO activist) as the new Minister (of Public Administration and Local Governance). The treatment of refugees and other migrants in transit has further on been near-exemplary, whereby the Government, together with CSOs, has done a lot to channel the public opinion away from occasional xenophobia towards humane, tolerant, rational and attentive attitude. The biggest downturn is felt in the fields of protection of privacy, freedom of expression and political equality. Civil democratic control over security sector is insufficient, with serious consequences on human rights. Verbal harassment or defamatory or denigration attitude towards the independent regulatory bodies, opposition political parties and their activists, human rights defenders, independent journalists, or other critics of government is practiced - rather as a norm than as an exception - not least by pro-government media but also by the Prime Minister or members of his team.

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Economic Freedom
Security of Property Rights

Private property is not adequately protected in Serbia. There are strong out-of-the-court influences on the judiciary, including also on the Prosecutor Office, which lie at the core of the problem. A good depiction of this was the recent Savamala affair. Corruptive practices are widespread within public institutions, including the judiciary and Land Register. Due to slow, and expensive legal processes which sometimes have uncertain outcome, legal enforcement of contracts is a painful process. First level courts are lacking sufficient knowledge and expertise to assess more complicated issues, so many cases are automatically transferred to appellation courts. There have been improvements in the process of restructuring of state-owned enterprises (SOE). They are no more legally exempted from

collections from their creditors, which strengthens property rights. Since May 2016, this applies even to the 17 of the biggest companies which enjoyed government protection. Ownership of agricultural land is restricted to Serbian nationals only, but this restriction is circumvented by registering a domestic legal entity owned by a foreign national, so this regulation affects only foreign natural persons. Inefficient Land Register office leads to long registration processes for the acquired land. The law on conversion of the right of usage of land to land proprietorship has been under implementation in order to clarify property rights, but very high fees are a troublesome issue, since proprietors basically have to pay twice for the same land.

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Size of Government: Expenditures, Taxes, and Enterprises

Size of government in Serbia is excessive, with the government consumption reaching 44.7% of GDP in 2015. Accumulated high public deficits have led to a strong increase of public debt, which peaked at 77.4% of GDP in 2015. Bad shape of public finances has increasingly required a fiscal austerity program, which finally was, albeit partially, introduced. It curbed very high public deficit to a more modest level of 3.7% of GDP in 2015, and it is expected to decrease further. However, those measures should not be abolished, because the level of debt remains very high. The unsustainable pension system and bloated public wage bill remain at the core of public finance problems. Furthermore, direct or indirect subsidies to inefficient state-owned enterprises (SOE) are still very high. The process

of privatization or liquidation of SOEs in restructuring is under way, but much slower than projected, while at the same time many of those deals are non-transparent, fuelling concerns of corruptive activities, such as for instance in the privatization of the renationalized steel mill that occurred in spring 2016. There are still numerous SOEs that are not envisaged for privatization, most notably in sectors such as mining, telecommunications, energy and transportation. Corporate tax is set at 15%, while personal income tax is at 10%. High social security contributions, however, lead to a high labour tax wedge of 38.9% which, coupled with a weak institutional setting (tax authorities and labour inspectorate), fosters widespread shadow-economy activities and employment.

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Regulation of Credit, Labour, and Business

Although several reform agendas have been fully or partially introduced, Serbia still does not pose a very much business-friendly environment. Starting a business is an efficient process, being fast, inexpensive and without paid in minimum capital requirements. However, there are many other areas where bureaucracy procedures are burdensome. Registering property is a lengthy procedure due to inefficient land registry, which still does not cover all land titles. Obtaining a construction permit is another clear example, although the new Law on Construction has significantly streamlined the process while the land development tax was abolished and incorporated into the property tax. Getting connection to the electricity grid imposes very high costs, due to inefficient public-owned

energy-distribution company and its high fees. Compliance with tax procedures is also burdensome, with complicated and sometimes contradictory regulation, exacerbated by the high number of annual payments and lack of expertise or resources by the public tax authority service. The process of licensing is widespread in certain industries and professions, limiting competition and creating rents for license holders. Labour market regulation rigidities were somewhat alleviated with the adoption of the new labour code - working hours’ regulation is flexible, but duration of fixed-term contracts is still low. Severance pay increases in accordance with years in tenure, protecting the seasoned workers. The minimum wage is very high, approximately 50% of the average wage in the country, fostering activities in the shadow economy, especially among older or people with lower education attainment.

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Freedom to Trade Internationally

International trade is generally free in Serbia, but there are weak points that need improvements. The inefficient customs agency burdens trade with its complicated procedures. Foreign currency regulations for companies are restrictive, leading to malfunctioning of Internet payment services such as Pay Pal. However, the introduction of the New Computerized Transit System (NCTS) in February 2016 is envisaged to eliminate hurdles and make transit of goods more expeditious. Serbia is, alongside Bosnia and Herzegovina, rare among European countries for not being a member of the World Trade Organization (WTO). Majority of the trade is conducted under the current Stabilization and Association Agreement (SAA) with the EU and Central Europe Free Trade Agreement (CEFTA), as well as bilateral

preferential trade agreement with the Russian Federation. Political tension in the wake of the migrant crisis led to the closure of the Serbian - Croatian border for freight transport, but this was quickly resolved upon a political pressure from the EU. Several disputes due to protectionist measures in Macedonia were settled under CEFTA mechanisms. Low quality of infrastructure, especially the railroads, leads to high freight cost, hampering trade. Political uncertainty regarding Kosovo hampers trade with this entity, but the ongoing dialogue process facilitated by the EU has improved the situation. Tariffs are mostly low, but certain agriculture products are protected from import competition by substantial tariffs. Variable tariffs on dairy product imports, that had been supposed to be temporary, have been again prolonged.

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