New growth plan for the Western Balkans: Free lunch or money for which Serbia needs to meet the conditions?

President Aleksandar Vučić announced that the first 125 million euros will soon arrive in Serbia as part of the Growth Plan for the Western Balkans. But that this is not an unconditional donation from the European Union, but funds for which our country will have to meet certain standards.

In order to receive financial support as part of the Growth Plan for the Western Balkans , states should implement reforms that will provide citizens with better living conditions, and Serbia has a greater task in relation to the region, which concerns the normalization of relations between Belgrade and Pristina.

Although the six billion euros that the EU plans to provide for the Western Balkans in the period between 2024 and 2027 should “boost” the countries’ economic growth, the main goal is still of a political nature, and refers to encouraging countries to comply with laws , values, policies and practices of the EU, in order to become its members in the future.

On the other hand, the economic goal of these funds is integration into the single European market (free movement of goods), integration and decarbonization of energy markets, access to a single payment area in euros, free movement of services and workers, and more.

Of this amount, two billion euros will be allocated through grants, and the remaining four billion euros through loans with more favorable interest rates.

Therefore, the question arises to what extent the finances that will arrive from the European Union have the power to bring our country closer to the EU, as well as whether Serbia is capable of fulfilling the prerequisites for their inflow.

Economist Libeka Mihailo Gajić tells our newspaper that the Plan is a financial instrument of the European Union whose goal is to accelerate economic growth in the Balkans, and to bring that area closer to Europe by connecting countries within the region, but also the entire region with the EU.

However, he is of the opinion that one should not expect too much from its effects, especially considering that the European Union has had similar projects for years through the European Bank for Reconstruction and Development, which also invests in infrastructure projects at low interest rates.

He explains that this Plan differs from the previous ones in that the money does not go through existing mechanisms such as IPA or IBRD, but is allocated directly from the European Union budget. It is also a novelty that, if the preconditions for support are not met, the EU can decide to suspend the release of funds.

“The money is intended primarily for the construction of infrastructure in the region.” It was also announced that the funds from this fund could be blocked if the candidate countries did not respect certain minimum standards regarding media freedom, democracy, the rule of law… The IPA, which until now was the main instrument of the EU and the EBRD, did not have such conditionality possibilities . If the technical capacities are met, those projects would pass, and there would be no checking of political criteria, as will be the case now,” says Gajić.

Our interlocutor points out that we should never forget the fact that the money provided is not free help or donation, but that the largest part is made up of loans that must be repaid.

“It’s not some big free money falling from the sky.” The loans are favorable, because the interest rate will be lower than the one at which Serbia borrows on the free financial market, and it is also good that they will be matched with the already existing infrastructure priorities of the state. In other words, Serbia plans to build a high-speed railway from Belgrade to Niš, and it is possible to partially finance it through this kind of financial instrument. There is no conditionality in the sense that the EU gives money only for something we may not need, but there is coordination and harmonization of what the common priorities are,” explains this economist.

On the other hand, speaking about the conditions for raising money, Gajić underlines that it is not yet clearly defined which technical bases the country needs to comply with in order to receive money, but there are only broad political messages about the importance of media freedom, institutional capacities and others.

“What this will really mean in practice, whether it is the Freedom House reports on media freedom, or which documents will be looked at, remains to be agreed,” he says.

Finally, this economist says that, although the Plan would be a positive step in terms of building the necessary infrastructure here and in the region, we should not expect too much from it.

“Due to political problems in the last three decades, the countries of the region have not invested excessively in the development of infrastructure, so this plan is significant in that domain. Good infrastructure also attracts private investment, which actually accelerates the rate of economic growth and removes infrastructure bottlenecks that slow down or prevent investment. However, you shouldn’t get your hopes up too much, because the amount allocated is quite small. Six billion is divided among the entire region, which has a combined GDP of over 100 billion euros. Also, it’s spread over several years, so it can’t be a major factor in the overall story. Individual projects that would be financed in this way, such as high-speed rail, would certainly be significant. But beyond that, I don’t see the potential to significantly change the whole picture,” concludes Gajić.

Nenad Jevtović, director of the Institute for Innovation Development, agrees with Gajić that the conditions for financing are of a political rather than an economic nature, especially in the sense that it is necessary to fulfill and speed up the negotiations towards the accession to the European Union.

“This type of arrangement should not be confused with the former arrangements we had with the IMF, when it is required to fulfill the reform of a certain public company, reduce the public debt and the like.” In other words, the plan is not related to clear economic parameters, but to alignment with policies and the direction of movement towards the European Union,” says Jevtović.

On the other hand, Vučić says that the reforms and the means for their implementation will mean a “dramatic jump” for Serbia in terms of salaries, pensions and living standards.

But our interlocutor is of the opinion that, when it comes to economic trends in the next three years, the growth of wages, pensions and living standards, this instrument will not be the dominant factor, but geopolitical trends will have the greatest influence.

“It will form energy prices and other relationships and chains of value creation in the economy.” The standard will be affected by the movement of inflation and interest rates in the world, and therefore also in our country. And besides, economic activity in Serbia with the influence of Expo. Only after all that, we can state the Growth Plan and the withdrawal of funds that are intended for us and the region through it,” he explains.

We remind you that payments under the Growth Plan for the Western Balkans will be made twice a year , provided that the countries fulfill the qualitative and quantitative steps already specified in the Reform Agendas submitted to the EU.

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