USAID Serbia Cooperation for Growth Project Second Quarterly Report – FY 2021 – April - June 2021

The project has two primary objectives: reducing the time and costs required for SMEs to comply with business regulations, and stimulating SME growth by expanding access to a greater variety of financial products and instruments beyond Serbia's limited bank offerings. The COVID-19 pandemic crisis continues to affect Serbia, with 7,047 reported deaths and 716,562 cases as of the end of June 2021. The country has eased most measures aimed at curbing the coronavirus, but vaccination rates have slowed down due to widespread anti-vaccination and conspiracy theories. Despite this, around 2.5 million people have been fully vaccinated, primarily with Chinese Sinopharm jabs. The World Bank expects Serbia's economy to grow by 5.0% in 2021, 1.9 percentage points above the forecast made in January. Serbia's economic growth in 2022 is estimated at 3.7%, versus a 3.4% rise prediction made in January. The World Bank forecasts a 3.9% growth of Serbia's economy in 2023. The country's economic output declined by 1.0% in 2020. The European Bank for Reconstruction and Development (EBRD) has upgraded its forecast for Serbia's GDP growth in 2021 to 6%, mainly due to the recovery of consumption and increase in public investments. The EBRD expects Serbia's economic growth to slow to 3.5% in 2022, as the economy is expected to return to the pre-pandemic speed of expansion and fiscal consolidation might commence. The EU member states have agreed to hold an intergovernmental conference with Serbia, during which a new negotiation methodology and next steps in the process will be presented. A significant number of member states did not agree to open clusters three and four, estimating that Serbia has not made enough progress, primarily in the area of rule of law. A large proportion of SMEs remained largely dependent on internal funds and bank credit to support their activities and growth during the quarter, making them especially vulnerable to economic downturns. There are signs that alternative sources of finance for SMEs are being strongly and negatively impacted by the current crisis, with the risk of backsliding on recent progress. Despite the major economic shock triggered by the pandemic, the available statistics do not indicate a major increase in overall bankruptcies so far. This is largely related to government support measures, including temporary regulations on insolvency. However, there are risks of debt build-ups among SMEs that may lead to significant increases in bankruptcies as support measures are unwound, with potentially long-lasting effects on the economy. Start-up launches fell sharply at the height of the crisis but have since made up lost ground in most countries, providing scope for optimism. Nevertheless, it remains uncertain at this stage how many of these start-up launches are driven by opportunity or necessity as a response to rising unemployment. There is a growing body of evidence that the self-employed, women, and minority entrepreneurs have been disproportionately affected during the crisis, with higher risks of bankruptcy and financial distress.