IMPACT OF COVID-19 CRISIS ON BALANCE OF PAYMENTS: RESEARCH HIGHLIGHTS FROM THE REPUBLIC OF SERBIA

Abstract

After reintegration with the world market and convergence towards the European Union which followed, the Serbian economy is no longer facing huge balance of payments deficits as earlier, which required improving the terms of trade, growth of exports and foreign direct investment. Furthermore, according to major international financial organizations, because of foreign trade and foreign exchange policies Serbian balance of payments nevertheless offers prospects for sustained economic growth and development in spite of the Covid-19 crisis. The general purpose in this paper is to review pre-pandemic and pandemic balance of payments experiences from Serbia with special emphasis on deficit mitigation performance as there is still a lingering balance of payments deficit. After classifying the internal and external factors of deficit, the specific purpose of this paper approaches research of the Covid-19 pandemic impact on the Serbian balance of payments at the end of the performance-rating period (2016-2020). Methodology of research of Serbian balance of payments is presented in the second section. It relied dominantly on IMF data sources, specifically IMF yearly data in million $ (2016-2020) and comparatively on Serbian statistical office (2019-2020). Eurostat GDP data (2020) was consulted for other countries, which are main trading partners of Serbia. Research included four main aspects: 1) Classification of Balance of Payments and International Investment Position according to the IMF Manual (BPM6); 2) Elaboration of Serbian balance of payments statistics and macroeconomic data for the period 2016–2019 (pre-pandemic); 3) Analysis and presentation of the evolution of the selected annual balance of payments statistics during the pandemic period (2020-2021); 4) Analysis and presentation of the rate of coverage of main balance of payments categories (2016-2020). The research results presented in third section reveal that deficits on major categories such as current and capital accounts still remain significant. In this regard, specific comparisons were made with 2019, the year before Covid-19 crisis, and a presentation of major Serbian trading partners is discussed briefly. At the end of July 2021, the future pattern of changes to the flows of the discussed categories based on the analysis of information from the pre-pandemic and pandemic period will significantly depend on pandemic developments in the second half of 2021 and in 2022. The pandemic is still underway and it is premature to draw any conclusions for any country. However, this research discovers and we conclude that the impact of the pandemic on Serbian balance of payments, at least through the end of 2020, was not as severe as in some other European and non-European countries. The main recommendation of the paper is therefore to maintain relative resilience of the observed Serbian balance of payments flows against potential new shocks from the ongoing pandemic. At the same time, economic policy should continue to attract foreign direct investment and gradually balance the current and capital accounts which are in fact still in deficit. Achievement of equilibrium between major Serbian balance of payments categories is possible by resolving specific internal and external factors of deficit explained in the introductory section of the paper. In a subsequent paper, we shall suggest new possible developments in the interpretation of these factors as additional data becomes available.