This report assesses Serbia’s economic governance through the lens of competitiveness. “Competitiveness” can be understood narrowly — as the relationship of domestic and foreign prices, which we refer to here as “trade competitiveness” — or more broadly, as the capacity of the domestic economy to generate broad-based and inclusive productivity growth under competitive pressure. The latter is how it is understood by the EU as the second of the two Copenhagen economic criteria — the fundamental economic criteria of preparedness for EU accession. Progress in this dimension is essential if Serbia is to benefit from and contribute to the Single Market as envisaged by the Growth Plan for the Western Balkans.
In this report, “economic governance” is understood as it appears in the first sub-criterion of a “functioning market economy” — itself the first Copenhagen criterion. Good economic governance describes a process whereby government institutions (primarily the executive but also independent economic actors like the central bank) design and implement sound macroeconomic and structural policies, enforce rules that provide a level playing field and correct market failures, and provide key public goods — through predictable, rule-based interventions. The rule of law is implicit in this definition.
High-quality economic governance is essential for the capacity to withstand competitive pressure and market forces once fully integrated into the EU single market. This capacity needs to be evolving and improving as the single market integration envisaged by the Growth Plan progresses. Competitiveness is thus understood not only as static relative costs and abilities, but as the capacity to adapt and evolve when circumstances require it.
We bring two perspectives that we believe add value to the EU’s monitoring framework. First, in our analysis of macroeconomic and trade competitiveness (Chapters II and III), we identify an emerging structural problem — a manufactured Dutch Disease — that makes achieving and sustaining competitiveness considerably more difficult. Second, we argue (Chapter IV) that Serbia’s administrative dysfunctionality, going far beyond the standard “implementation gap,” invites massive political intervention that has come to undermine institutional capacity itself. This is Serbia’s distinctive challenge, and it is what makes business environment reform genuinely difficult. The argument is built through an examination of how this dysfunction shapes public spending (Chapter V), and of three Reform Agenda pillars — state aid (Chapter VI), public investment (Chapter VII), and public procurement (Chapter VIII) — where governance quality is directly observable. The governance of public enterprises, which fairly belongs in this group, we hope to address in future editions. The dysfunctionality we describe also creates structural openings for corruption, which we believe will be self-evident from the analysis but which we do not attempt to measure — that requires different research methods. While we point out the key openings, a systematic analysis of corruption falls outside the scope of this report.