Serbia 2018

Total score

57.37 change: 0.52999999999999

Score and comments

Political Freedom
Free and Fair Elections

Freedom and fairness of the electoral process in Serbia deteriorated for the fourth consecutive year at the Freedom Barometer Index. Weakening democratic institution of elections, abuse of power and state resources, tight control over media and irregularities on the voting day, all mark uneven playing field for political parties. Citizens are kept in the environment of constant elections, often snap ones, used by the ruling party to consolidate power in the country and shift the focus from the governing of the state. After 2016 parliamentary and 2017 presidential elections, in 2018 elections for the city local council in the capital Belgrade took place. Like previous two mentioned, these elections were as well characterized by biased media coverage in favor of the ruling party,

blurred separation between campaigning and regular activities of state officials, voter intimidation and vote frauds on the election day. Only four party lists managed to pass the 5% threshold, with ruling Serbian Progressive Party (SNS) scoring 45% of votes and securing absolute majority in the city parliament. Politicization of state institutions such as Regulatory Electronic Media Agency, or Elections Commissions, together with a hostile climate created against opposition politicians as such, critical journalists, and civic activists, and the pressure on state employees to vote for the ruling party and take part in its political activities, all contributed to making the political arena an unfairly set battleground. The situation at the local level is often even worse regarding the above mentioned deficiencies. Despite some consolidation efforts within the opposition during the period under review, it still lacks seriousness and power to challenge the ruling party.

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Absence of Unconstitutional Veto Players

Decision making in Serbia is under effective control of elected state officials. However, concentration of power in the constitutionally ceremonial role of the President and weak system of checks and balances hinder democratic institutions and rule of law. Although he moved from the Prime Minister position, Aleksandar Vučić continued to exercise almost complete control in the country, through his Serbian Progressive Party (whereof he remained the party chairman) and its parliamentary majority, dominating over both the legislative and the executive branch of power. In addition, politicization of judiciary largely prevents its oversight function. Close ties between members of the ruling elite and some businesses are established, so as to favor their personal interests. Serbia is

ranked as 77th in the Transparency International`s 2017 Corruption Perception Index. Secret service and organized crime are considered to have significant influence on politicians and country politics, while influence of the Serbian Orthodox Church on public opinion is weak, despite their efforts to intervene on issues such as relations between Serbia and Kosovo.

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Freedom of Press

Together with democratic standards, freedom and independence of the press in Serbia are in rapid decline. The country deteriorated by 10 positions on the Reporters without Borders 2018 World Press Freedom Index and currently holds 76th position, lowest among all Western Balkan countries. Warnings regarding this worrisome trend are coming from many domestic and international media instances, with European Journalist Federation having had deployed a special visit to Serbia at the end of 2017. Wide range of print, broadcast and online media outlets exist in the country however pluralism of their reporting is at stake. Ruling elite does not hesitate to abuse legal - or use extralegal - tools to confront with those who are critical of the government and/or of the

president Aleksandar Vučić. Local media outlet “Vranjske” was closed down due to such atmosphere. There are only few outlets providing objective and critical reporting. Investigative journalism, which is mostly NGO driven, plays an important role in providing checks to the regime, however their work is often targeted by physical and verbal harassment campaigns. After the KRIK – the Network for investigating crime and corruption - published an article on a suspicious money used to buy the apartment by the Serbian Defense Minister, many pro-government tabloids launched a smearing campaign against its founder, aiming to discredit him and the entire network. Both economic pressure through state advertising favoring government friendly outlets and political pressure are used to ensure biased reporting, with many media houses and journalists often practicing self-censorship or becoming a ruling party`s propaganda tool. Journalists are working in poor economic conditions, faced with intimidation and hostile atmosphere. An increased number of physical and verbal attacks are additionally hindering objective and independent reporting and overall quality of journalism in Serbia.* Press freedom score will be updated after data from primary source have been published. For more information see Methodology section.

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Rule of Law
Independence of the Judiciary

Although stipulated by the Constitution and laws, independence of judiciary in Serbia is at a very low level and deteriorating, due to non-existing, or repeated slow, shallow and inconsistent reforms, lack of political will to implement and respect the laws and various out-of-government pressures, such as by organized crime, or by unreformed parts of “deep state”, or through corruption, nepotism or cronyism. Debated constitutional and legal changes demanded by the EU and envisaged to advance the rule of law are behind schedule, while suspected by some CSOs to be introducing new ways of subjugation of judiciary to the executive, e.g. via narrowing channels of entry into profession. Occasional media campaigns, corroborated by the highest politicians` selective criticism of the sector,

pose an additional pressure. Huge backlog of cases, controversial decisions in high profile cases and slow implementation of court decisions led to a widespread mistrust in judiciary by citizens and companies. To it, police and prosecutors are even less independent than judges. As for prison conditions, by mid-2018 a new high-tech prison for the longest-serving convicts was near completion, arousing hopes of less overcrowding, more specialization and more correctional success in penitentiary facilities.

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As the hopes of a corruption-free society, unrealistically awaken in 2012, have faded away, Serbia is doing even less than realistically possible to gradually decrease graft. Stagnation and small oscillations around ca. 40/100 points (e.g. 41 in 2017) at the Transparency International`s CPI list provide her each year with a bit worse ranking. In 2017 those were the shared places 77-80/180 (as compared with 72-74/176 in 2016). The capture of key institutions (including those supposed to be independent) and key positions in the public sector (itself still very big and only partially corporatized) by the ruling parties` loyalists provides huge ground for non-transparent mega-projects while narrowing ground for investigation of would-be irregularities. Some of the biggest infrastructural

projects or public-private partnerships were agreed without competitive tenders (or with those considerably manipulated), or via inter-governmental political deals (thus reducing public access to information or other tenets of transparency). According to portal GAN, corruption risks are especially high in public procurement, land management, tax administration, police and customs. Anti-corruption agency (ABPK/ACAS), almost a decade old, has never worked efficiently. Recently, it has been additionally crippled by frequent changes on the top, coupled with neglect or ignoring by other state bodies. For several years now a new law on ACAS is being deliberated. In a daily fight against middle and low level corruption, the number of arrests and launched investigations is rising, but the number of final, applicable court verdicts is not. In March 2018, Council of Europe warned Serbia over her failure to implement any of the 13 recommendations by the GRECO, as of the year 2015, on fighting corruption among parliamentarians, judges and prosecutors.

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Protection of Human Rights

Serbia`s recent human rights` map is full of divergent trends. In education, even pretty clear corruption, diploma-buying or plagiarism cases are let go, thus menacing a level playing field. On the other hand, education in languages of minorities, or school inclusion of child migrants, is exemplary well implemented. President and other officials made important symbolic gestures aimed at encouraging temporary settled migrants to attend education and creatively and productively engage with local communities. Human trafficking is still a major problem. In spite of the rise of extremism and hate speech in society, especially online, protection of minorities is in average better. Ethnic minorities enjoy, via freely elected councils, the rights to influence relevant educational and cultural

policies. But they are occasionally subject to extremist pressure and threats. In spite of a privileged position of the SPC (and other “traditional” religious communities), government often successfully rejects their demands to shape policies on crucial national issues. Sexual minorities have seen the biggest breakthroughs recently, with Pride parades regularly held, homophobic narrative in media in retreat, and anti-discrimination protection strengthened (however inconsistently applied). Same-sex unions, but, still await recognition. The worst developments are in the freedom of thought and expression (to do with decreasing media freedom, and also with increasing censorship of the public-funded art works), in the position of dissenting NGOs (often smeared in the pro-government media), in access to public information, in the right of privacy (endangered primarily by concealed pro-government actors) and in treatment of war crimes and war criminals of the 1990s. ICTY convicts who had already served their sentences for war crimes, mainly without repent, enjoy government – open or covert - support and are given opportunities to influence new generations of army officers, police, or broad public, via lectures, public-funded memoir books, TV interviews, or by remaining as MPs or members of the leading bodies of political parties.

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Economic Freedom
Security of Property Rights

Private property in Serbia is not adequately protected. Judiciary and the Prosecutor’s Office are not independent from the strong out-of-court influences. The executive branch of government has a constitutionally significant role in appointment of judges, which will require changes in the Constitution alongside the further EU accession process. This process, however, is slow, non-transparent and used by the coalition in power to legitimize its grip over the judiciary. The Savamala affair as of spring 2016, which had demonstrated to what extent government agencies have been compromised to serve particular private interests, has not yet been resolved, due to obstruction and lack of political will. Corruptive practices are present within public institutions, including the courts,

land register and inspectorates. Legal enforcement of contracts is an inefficient process due to time-consuming and expensive legal procedures, lasting almost 2 years on average and costing 40% of the claim. Judicial rulings are often inconsistent across different courts and judges; first level courts also often lack sufficient knowledge and expertise to assess more complicated issues, so numerous cases are automatically transferred to appellation courts. Bankruptcy procedures are also lengthy, with low recovery rate of only around one third of the claim. Ownership of agricultural land is restricted to Serbian nationals only, but this is circumvented by registering a domestic legal entity owned by a foreign national, so the regulation affects only foreign natural persons. However, since August 2017, EU nationals have been permitted, under the Stabilization and Association Agreement, to own land, but with many obstacles attached, that in practice made this right difficult to exercise. Coverage by the land register is restricted mostly to bigger cities, while the performance of its local branches varies significantly, whereby many titles are not clear. The process of legalization of more than 2 million objects built without a permit, half of which being residential, is still ongoing, albeit very slowly and with many allegations of corruptive practices. The process of restitution has not yet been finalized. In many cases where property restitution or substitution is possible, government bonds will be offered instead, with the offered amount perceived as less than the actual value of the property.  

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Size of Government: Expenditures, Taxes, and Enterprises

The size of government in Serbia, with overall government consumption reaching 42% of the GDP in 2017, is in line with other European countries yet above those transition countries at the similar level of development. Fiscal austerity program that was introduced in 2015 under the auspices of the IMF, with curbing the spending on the wage bill and pension benefits, delivered results in putting deficits under control and was successfully finished in February 2018. However, positive external situation with the low interest rates due to the ECB monetary policy, low energy prices, Euro-zone growth, etc., were also important in this regard, fostering growth. Although sluggish in 2017 with 1.8%, it significantly picked up in 2018, but its trend remains weak as compared to other transition

economies. Public debt, reaching 61% of GDP in 2017, is on a strong downward trajectory from its 2015 peak of 76%. However, the unsustainable pension system, together with the bloated and non-reformed public wage bill, still remains at the core of the public finance problems, followed by high direct or indirect subsidies to inefficient state-owned enterprises (SOEs). Although it was initially envisaged to be completed by 2015, the process of privatization or liquidation of SOEs in restructuring is still under way, due to political pressures. But, most important ones have already been resolved, such as the Smederevo Steel Mill, or the Bor copper mines. In privatization process, those were considered as fair and transparent. SOEs that are not envisaged for privatization are still numerous and present in many sectors, such as mining, telecommunications, energy, transportation, banking and insurance, etc. Taxes are mostly in line with other European countries. The standard VAT rate is 20%, and the preferential one is 10%. Corporate tax is set at 15%, while personal income tax is set at 10%. High social security contributions, however, lead to the total labour tax wedge of 39%, which, coupled with a weak institutional setting (of tax authorities and labour inspectorate), fosters widespread shadow-economy activities and employment.

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Regulation of Credit, Labour, and Business

Business-friendly environment in Serbia is still evasive. The biggest challenges stem from the low level of rule of law, partial regulatory implementation and corruption. Due to the increased centralization of political power, Serbia exhibits some characteristics of a captured state in which restrictive rules apply only to those without good political connections. However, several reforms during recent years have improved the existing regulatory framework (labour code, law on investments, construction licenses regulations, inspectorate, etc.) but this has mostly improved the situation for big businesses that have the possibility of direct communication with politicians, while it has not had any impact on the conditions in which SMEs works. Regulations are often complicated and non-aligned

with one another, while petty corruption is also present. The most problematic factors for doing business are considered to be high tax rates and inefficient government bureaucracy. Starting a business is an efficient process, being fast, inexpensive and without paid-in minimum capital requirements, whereby it is usually done within a week. Obtaining a construction permit was made more business friendly by significantly lowering the number of procedures and time limits, by opening one stop shops for investors and by using electronic tools. Now, this procedure lasts approximately three months, whereby electronic application system is used. Connecting to the electricity grid imposes enormous costs, due to the high fees imposed by the inefficient public-owned energy-distribution company. Compliance with tax procedures is also burdensome, with complicated and sometimes contradictory regulations, exacerbated by the high number of annual payments and lack of expertise or resources by the public tax authority service. Labour market regulation has both flexible and inflexible characteristics. Fixed-term contracts are prohibited for permanent tasks and their maximum duration is limited to just 24 months; but working hours are not overly regulated. Severance pay increases in accordance with years in tenure, protecting the seasoned workers, but notice periods do not. The firing section due to redundancy and misdemeanor is overly protective towards the workers, contributing to shadow employment and the high number of people employed through short term or other non-standard labour contracts. The minimum wage is high as compared to the average wage, reaching almost 50% of the latter, as it was further increased by 10% in 2018. This might further encourage activities in the shadow economy, especially among elderly, or people with lower education attainment.

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Freedom to Trade Internationally

Freedom to trade internationally is generally upheld in Serbia. Tariffs are mostly low, with the average MFN applied rate of 7.4%. But most of the tariff protection is dedicated to agricultural products. Besides, non-tariff trade barriers are also in place, with complicated standardization and licensing procedures. Although legislation in those areas has been reformed in order to harmonize the existing regulatory framework with the one in the EU, improvements are partial due to low capacities and weak implementation in practice. This reform will expectedly advance with the further Serbian EU accession. Serbia is one of the rare European countries that are not members of the World Trade Organization (WTO). The WTO accession talks started in 2005, but since 2013 this process has

been put on hold. The main obstacles to Serbian accession are local regulations regarding the total ban on sales of GMO products and excise duties on alcohol products levied by the type of beverage and not by their alcohol content. The bulk of Serbian trade is conducted through multilateral and bilateral free trade agreements, which further suppresses the need for WTO accession. Main Serbian trade partners are the EU countries, followed by the Western Balkan members of CEFTA. Other important partners are Russia and China (as the only important partner with whom Serbia does not have a signed trade deal). While the Stabilization and Association Agreement (SAA) functions smoothly, CEFTA does not, since its dispute settlement procedures have not yet been established, which encourages frequent protectionist trade policies, which are then settled through slow and unreliable bilateral negotiations. Customs agency is considered as inefficient, with complicated regulation and obsolete computer equipment. Online tools are thus still underutilized. The customs office is also prone to corruption and political influence, which is used by people with good political connections to gain advantage over their competition in case of selling imported goods. Due to its favourable geographical position, Serbia is an important regional trade hub, and the new computerized transit system that had recently been introduced significantly reduced transit burden, since it made border controls more expeditious. However, low quality of transport infrastructure, especially the railroads, still imposes problems, since it increases freight cost. The reform of the state-owned railroad company with its corporatization into a few companies is expected to somewhat alleviate this problem and introduce private sector competition. The international E10 and E11 corridors have not yet been finished, due to inefficient state project companies and weak oversight. New infrastructure initiatives, recently launched, regarding the fast-track railroad towards Budapest, or a motorway towards Prishtina, are rather politically than economically motivated, which might prove as very costly in future.

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