Serbia 2019

Total score

58.76 change: 1.39

Quick facts

  • 6.993 million
Unemployement rate:
  • 13.8 %
  • 50.509 billion $
GDP growth rate:
  • 4.3 %
GDP per capita:
  • 17550 $ PPP

Score and comments

Political Freedom
Free and Fair Elections

Serbia has continued its worrisome trend of deterioration of freedom and fairness of electoral process, for the fifth consecutive year according to Freedom Barometer Index. Elections are undermined by the abuse of power and state resources by the ruling party, their tight grip over private and public media, capture of institutions, climate of fear of retribution widespread among citizens and critics of government, and many irregularities and violations on election days. Despite that there were no elections during the observed period, political landscape was marked by deep societal division along political lines and massive protests against government extensive pressure on democratic institutions, opposition politicians and independent media, keeping citizens it the atmosphere of constant

tension and expectation of possible snap elections. Government holds tight control over media, thus electoral campaigns abound with biased media coverage in favor of the ruling party and uneven access by opposition politicians to public outlets. Lack of balanced representation in media and public is even more emphasized with blurred separation between official state activities by the ruling politicians and their political party campaigning. Hostile climate against opposition politicians, critical journalists and civic activists is embodied in several physical and verbal attacks throughout the year. Public servants are often subject to pressure of voting for the ruling parties and participating in their activities, or else they could face downgrading or losing their job. Election days continuously abound with cases of voter intimidation, tabulation of votes and vote buying. All those are used to shape the outcome of the electoral process in favor of ruling parties, making political playing field largely uneven. Street protests that meanwhile occurred in Serbia served as a consolidation point for certain opposition parties. However, due to their disagreement over whether or not to have participated at the upcoming 2020 parliamentary elections, unclear political agenda and smear discreditation campaign of opposition politicians run by pro-government media, they still lacks seriousness and power to challenge the ruling party.

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Absence of Unconstitutional Veto Players

Elected state officials in Serbia have effective control over governance in the country, without serious interference from unconstitutional veto players. 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. President Aleksandar Vučić continued to exercise almost complete control in the country, as a chairman of Serbian Progressive Party which has a majority of seats in the National Assembly of Serbia, dominating over both the legislative and the executive branch of power. Using parliamentary majority, ruling parties are putting much effort to further shrink the space for political debate and dialogue in Serbia, by submitting vast number of, often irrelevant,

amendments (up to few hundred) to the laws, biased use of the disciplinary measures and adopting laws in emergency procedures. Such environment led many of opposition political parties to boycott parliamentary sessions. Judicial branch of power is under strong political influence, thus its oversight function over the system is poorly implemented. High level corruption in Serbia is pervasive. Close ties between ruling politicians and wealthy businesses are often used for their personal political and financial gain, undermining democratic institutions. Secret service and organized crime are considered to have significant influence on politicians and country`s 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

Freedom and independence of media in Serbia is declining, with many problems remained unaddressed, if not worsened. Small audience market is oversaturated with numerous broadcast, print and online media outlets, whose reporting is rather biased in favor of ruling party, thus lacking diversity in reporting. Concentration of media ownership remains high, with several important outlets which haven’t publicly disclosed in full their ownership structure. Public funding is the main source of revenue for most outlets, often used by government to shape media narrative and silence those critical of their activities. State is also the biggest advertiser on the market, favoring government friendly outlets. Both these processes unfold in non-transparent manner. This extensive economic pressure

exercised toward media outlets in Serbia transformed them into government propaganda mouthpiece. 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. Journalists are working in a climate of fear, shaped by increased number of physical and verbal attacks on them, intimidation and harassment, editorial censorship and poor economic conditions. Such atmosphere led to a decrease of quality of journalism in Serbia, with objective and independent reporting mostly done online or through several investigative outlets and NGOs. 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. One journalist had his own house burned down due to his investigative work on corruption. The country deteriorated by 14 positions on the Reporters without Borders 2019 World Press Freedom Index and currently holds 90th position.

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Rule of Law
Independence of the Judiciary

Judicial system in Serbia is far from being independent from the executive branch of power or of other outside influences. As European Commission report as of May 2019 reads, „some progress was achieved during the reporting period“, while „last year`s recommendations have only been partially addressed“. In reality it means that almost no improvements were made that would considerably advance independence of judiciary. True, backlog of cases stopped amounting, and especially new cases were in 2018 resolved more efficiently than in 2017. Court practices have been harmonized. Situation in the prison system is better. But, constitutional reforms, which should lay a solid ground for a durable, sustainable and substantial reform of judiciary are still stalled, while all the

draft amendments that were discussed fell below the expectations of the public or ideas that came from civil society. Both the EC and Freedom House warn at a scope of political influence on courts, the latter especially pointing out at judicial appointments and at the practice of commenting ongoing court cases by the top politicians. In such a climate, sort of „self-censorship“ is widespread among prosecutors and judges, leading to de facto impunity of the most important public officials. On the top of it, there are also problems of non-political external influences on court decisions, through corruption and/or by criminal, business or other interest groups. Judges who publicly expressed dissatisfaction with the state of affairs often encountered smearing campaigns against themselves in pro-government media.

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Corruption is steadily re-gaining ground in Serbia after the anti-graft frenzy, unrealistic expectations and some real-life improvements as of the mid-2010s. The country`s rating at the Transparency International`s CPI list has been falling for a few years now - in 2018 arriving to 39/100 and placing Serbia as 87-88 out of 180 countries. Growing authoritarianism in politics, shrinking media freedom and capture of independent regulatory bodies (including the main anti-corruption agency) by the ruling parties have all contributed to fall in transparency and accountability of government, both at central and local level. Starting from elections, misuse of public resources for the benefit of the SNS or other ruling parties, already having had become usual, has now, at the local

level, been coupled with the misuse of supposedly independent humanitarian or other NGOs, such as Red Cross, to gain advantage for election contestants – either strategically or tactically - favored by the central government. When it comes to infrastructure projects, most of the major ones are implemented through inter-governmental agreements, thus circumventing usual tender procedures. On the brighter side, the number of investigations and convictions for petty corruption have risen, although even in that segment there was a backlash in that „small gifts“ to medical staff were de facto legalized. Also on the bright side, serious improvement has been made in fighting international money laundering, while the first steps (in the form of new law) were taken to seriously tackle the issue of lobbying. 

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Protection of Human Rights

Besides corruption, human rights is another field of rule of law in Serbia where the growing authoritarianism and state capture by the ruling SNS have started taking toll, in an anyway mottled environment. Position of some ethnic minorities, especially Roma, worsened after post-2000 gradual improvements. Ethnic distance thereto is increasing (and is now bigger than towards migrants, or towards ethnic Albanians), discrimination again goes with impunity, while affirmative action programs stagger. There are entire municipalities, including a few boroughs in Belgrade, where not a single Roma child was admitted to kindergarten in 2018. Government plays the blame game, even though Roma National Minority Council is controlled by pro-government loyalists. Position of LGBT people

improved after 2009, and again after 2014, with Pride rallies now freely held, and with less hate speech or discrimination in society, but the appointment of an out-ed lesbian as the PM in 2017 did not move an inch forward the unresolved issue of same-sex unions. The role of government in running schools and universities has increased since 2017. Fake diplomas and plagiarism among politicians are turned a blind eye at by the ruling parties, thus seriously harming academic integrity. Student associations and Belgrade University, however, took a few meaningful steps to expose some of the worst perpetrators. Genocide denial, and minimization of the war crimes of the 1990s in general, continue to burden Serbia`s own social climate and its relations to neighbors, whereby convicted war criminals who had served their terms continued to enjoy a number of state privileges and public honor. Special UN envoy has, in early 2019, complained about cases of torture or police brutality in custody. On the bright side, among Balkan countries there are perhaps least problems in Serbia with the treatment of migrants, however that one might also further improve in some areas. 

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Economic Freedom
Security of Property Rights

Private property in Serbia is not adequately protected. The main challenges lie in the strong influence of political actors over the judiciary and the Prosecutor’s Office, which severely limits their independence. A judicial reform that would alleviate some of the problems stemming from a constitutionally significant role of the government through its parliamentary majority in appointment of judges and prosecutors was presented in the form of constitutional amendments. However, these were widely criticized since the process was non-transparent and the proposed solution would not loosen the grip of the government over the judiciary. The Savamala affair as of 2016, which showed to what extent government agencies were compromised to serve particular private interests, remains

unsolved due to the lack of political will. Corruptive practices within public institutions, including courts, land register or inspectorate, remain present. Political influence over the nominally independent state bodies and regulatory agencies is also attested. 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 instance courts also often lack sufficient knowledge and expertise to assess more complicated issues, and there after numerous cases are automatically transferred to appellation courts. Bankruptcy procedures are also long, with low recovery rate of only one third of the claim. Ownership of agricultural land is restricted to Serbian nationals only, or to EU nationals that meet certain highly restrictive conditions. These restrictions are easily circumvented by registering a domestic legal entity owned by a foreign national. Coverage of 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, half of which residential, built without a permit, is still ongoing, but very slowly and with many allegations of corruptive practices. Although this process is envisaged to end by 2023, less than 10% of cases have been resolved by legalization so far. The process of restitution of property nationalized during the socialist regime has not yet been finalized: in many cases where property restitution is possible, the government decided to offer bonds, with restrictive clauses which will result in a received amount that is below the perceived value of the property. Issuance of these bonds was again postponed, with new legislative amendments, to 2022.

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Size of Government: Expenditures, Taxes, and Enterprises

Size of government in Serbia, with overall government spending reaching 40% of GDP in 2018, is mostly in line with other European countries, but significantly above that of other transition countries on the similar level of development. The three-year long IMF stand-by arrangement that supported the fiscal austerity program was finalized in 2018, and the government signed the newly organized Policy Coordination Instrument, which provides for IMF technical support. Public debt is on a downward spiral, from its peak of 76% of GDP to 50% in 2018. Capital spending on infrastructure is rising, and the adoption of the Swiss formula for pension benefits indexation was also a positive move. However, the wage bill expenses are rising significantly above the economic means of the country.

The growth rate of the economy is slower (approximately 3.3% in 2019) than in comparable countries, due to infrastructural and administrative bottlenecks, corruption and low level of rule of law. Further pressure on the public spending is expected from the unsustainable pension system, bloated and unreformed public wage bill and rising healthcare expenditures. Even after the several privatization rounds, the SOEs still dominate significant sectors of the economy, such as the energy, transportation, utilities, mining and infrastructure, while the state still has a visible share in banking, insurance and telecommunications. According to the official statistics, there are more than 700 SOEs in the country, with 250 000 workers, which is more than 15% of the total employment outside the purely public sector. Additionally, there are approximately 30 000 employees in 90 companies in restructuring, that are planned to be privatized. But, the process of their privatization has been developing slowly since 2015. Recent important privatization cases included Belgrade airport concession to the French company Vinci, RTB Bor mining company sold to the Chinese Zijin Mining, and the agricultural corporation PKB sold to the UAE-based Al Dahra. However, all those privatization cases are widely considered to be non-transparent, with the buyer known in advance. Taxes are mostly in line with other European countries: the standard VAT rate is 20%, while the preferential one is 10%. Both corporate tax and personal income tax are flat, set at 15% and 10% respectively. However, mandatory social security contributions are high, leading to the total labour tax wedge of 38% on average wage which - coupled with a weak institutional setting (tax authorities and labour inspectorate) - fosters widespread shadow-economy activities and employment. Recent tax reforms provided a small tax relief, with a 0.5% reduction in security contribution paid by the employer, and a streamlined list of para-fiscal charges and fees.

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Regulation of Credit, Labour, and Business

Business environment in Serbia is mostly open to entrepreneurial activities. The biggest challenges stem from the low level of rule of law, partial or biased regulatory implementation and corruption. Due to the increased centralization of political power, Serbia exhibits some characteristics of a captured state in which for full application of rules a good political connection is a precondition. This situation is more difficult for the SMEs, since they lack resources to reach higher echelons of decision making and overrule administrative decision in first instances. Big international companies however can take advantage of this situation due to the political support they can receive from their respective country of origin, but also from other local stakeholders. Business

regulations are often complicated and non-aligned with one another, and petty corruption is also present. Government administrative capacities are constrained, not only due to the freeze in hiring that has been in place since 2014, but also to political appointments and low professional standards in practice. Recent reforms of the business environment were mostly incremental, with further strengthening of online tools of communication with the state administration, which is mostly visible in the case of construction permits. The VAT refund arrears, which had been piling up in the last two years due to slow administrative procedures and increased tax inspections, have been slowly decreasing through newly appointed internal time limits within the tax service. Starting a business is an efficient process, being fast, inexpensive and without paid-in minimum capital requirements, and is done within a week. But, this procedure was made more difficult by filing for a final beneficiary registry as a separate procedure. Obtaining a construction permit has in recent years been made more business friendly, by significantly lowering the number of procedures and time limits, opening of one stop shops for investors and using electronic tools. It is now done within 3 months and with low associated fees. Getting connection to the electricity grid involves high costs, due to the high fees of 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 got both flexible and inflexible characteristics. Fixed-term contracts are prohibited for permanent tasks. Their maximum duration is limited to just 24 months. Working hours regulation is not overly stringent. Severance pay increases in accordance with years in tenure, protecting the more 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 and non-standard labour contracts. The minimum wage is high as compared to the average wage, reaching almost 50% of the latter, as was increased for additional 8% in 2019 after the 10% rise in 2018.

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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 tariff protection is dedicated to agricultural products (MFN tariff rate of 13.9%). But non-tariff trade barriers are also in place, with complicated standardization and licensing procedures. Although legislation in those sectors has been reformed so as to harmonize the existing regulatory framework with that of the EU, improvements in practice are partial due to low administrative capacities. This reform will expectedly advance with further Serbia`s EU accession. Serbia is one of the few European countries which isn`t a member of the World Trade Organization (WTO). The WTO accession talks started in 2005, but since 2013 this process has

practically been put on hold. The main obstacles to Serbian accession are to be found in local regulation, e.g. regarding the total ban on sales of GMO products, while excise duties on alcohol products are levied by the type of beverage and not their alcohol content. Since the bulk of Serbian trade is conducted through multilateral and bilateral free trade agreements, the WTO accession is not high on the reform agenda. Main Serbian trade partners are the EU countries, followed by the Western Balkan countries, members of CEFTA. Other important partners are Russia and China, the latter being 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, then settled through bilateral negotiations that are slow and unreliable. The most notable one are the 100% ad valorem tariffs imposed by Kosovo for goods from Serbia and Bosnia. Serbia has recently signed an FTA treaty with the Eurasian Economic Union, which in practice broadened the base of the FTA agreement with Russia to the new EAEU members, Armenia and Kyrgyzstan. Serbian government also announced a deeper economic integration with Albania and North Macedonia, but this actual plan yet remains to be presented. Customs agency is considered as inefficient, with complicated regulation, and with obsolete computer equipment, so online tools are 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 use of the New Computerized Transit System significantly reduced transit burden, making border controls more expeditious. However, low quality of transport infrastructure, especially the railroads and the river ports, still imposes problems through increasing freight cost. The reform of the state-owned Railroad Company was mostly implemented during the previous several years, alleviating some of these problems through higher investment. The international E10 corridor was finally completed, with significant delays and higher costs due to inefficient state project companies and weak oversight. New infrastructure initiatives that would increase connectivity in the region have also been planned (highways to Sarajevo and Prishtina, fast track railroad to Budapest) but their financial viability is dubious, which may prove very costly in the future. The National Bank of Serbia still maintains a significant number of capital controls, as compared to other countries in the region, but mostly on short-term capital, while long-term capital flows are liberalized. The new Law on Foreign Exchange Operations lifted some of these restrictions, so locals can now buy foreign short-term securities issued in the EU or by the international financial organizations, while foreigners can buy Serbian short-term securities. Capital markets are not fully liberalized for individuals, since Serbian citizens are not allowed to maintain currency accounts abroad, short of a few exceptional situations.

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