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If the economy gradually recovers from the pandemic, fiscal space should focus on public investment, which will be crucial to supporting growth. This is the recommendation of the International Monetary Fund for the budget that is currently being created for 2021.
The Ministry of Construction, Transport and Infrastructure plans to continue investing in infrastructure projects for a total amount of 210.8 billion dinars, and only in the next year, the ministry told “Politika”.
So, in 2021, investments will be made in the Frushkogorski corridor (14.8 billion dinars), the detour around Belgrade from Ostružnica to Bubanj Potok (6.8 billion dinars), the continuation of the construction of the Čačak-Požega highway ( 13.5 billion dinars), the Moravian Corridor (36.2 billion dinars), the Belgrade-Sarajevo highway (4.5 billion dinars) and the Ruma-Sabac-Loznica highway (seven billion dinars). It is also planned to start the construction of the Nis-Plocnik highway (100 million dinars) and invest in several regional roads.
The plan is to continue the modernization of the Belgrade-Budapest railway (67.5 billion dinars). It is proposed to invest 11.9 billion dinars in the construction of railway infrastructure and the purchase of diesel trains. Nine billion dinars have been allocated for the realization of the railway infrastructure project and 600 million dinars have been planned for the reconstruction of the railway from Nis to Dimitrovgrad.
The list also includes the construction of a new port in Belgrade (RSD 108 million), as well as the expansion of ports in Sremska Mitrovica (RSD 2.1 billion), Smederevo (RSD 4.4 billion), Bogojevo (RSD 47.6 million) and Prahovo. (12 million dinars). There are also programs for the supply, processing and purification of water throughout Serbia.
The corresponding ministry notes that the rebalancing during the state of emergency due to the corona virus reduced its budget by 16.6 billion dinars. The Fiscal Council recommends that investments in infrastructure in 2021 increase by approximately 0.5 percentage points of GDP compared to 2020, because such investment has a strong anti-recession character, stimulates economic growth, which eventually returns to the state through higher budget revenue.
– Our analyzes have unequivocally shown that the increase can be realized, since there are many projects ready for that. Furthermore, increased investment in infrastructure can be financed primarily within the existing budget space for public investment without jeopardizing the target deficit of around two percent of GDP in 2021. This would be achieved by reducing military spending to 0 levels and less economically productive police. , 3 percent of GDP, which would adjust the level and structure of public investment to the allocations in the countries of Central and Eastern Europe. In addition, we recommend that a better selection of projects be made within the construction of infrastructure (the construction of sports facilities in conditions of limited fiscal space is certainly not a priority now) – so the Fiscal Council report states.
The intensification of infrastructure construction in 2021, if the epidemiological situation allows, is important in many ways. Among other things, this is the best form of public spending for economic recovery. The Fiscal Council notes that this crisis will significantly reduce foreign direct investment in Serbia, which has been a major engine of economic growth in previous years. The increase in state investment in infrastructure would offset part of the loss of these investments in the short term.
Impact of the pandemic
Initial budget plans in 2020 foresee public investments of around 260 billion dinars. With the outbreak of the pandemic, capital spending plans were cut by about 30 billion dinars.
– To avoid the mistakes of the previous crisis, public investments in infrastructure should not be reduced further. Public investments, especially the construction of infrastructure, represent the highest quality form of public spending: they stimulate economic activity in the short term (through the growth of aggregate demand) and in the medium term (through the growth of the aggregate offer). While postponing infrastructure projects in the short term can provide space in the budget to finance current or extraordinary expenses, maintaining a lower volume of public investment could cost the country faster economic growth in the medium term – says the Fiscal Council, recalling that capital expenditures declined after the crisis from about 4.5 percent of pre-crisis GDP to its lowest level of about two GDP in 2013 and 2014.
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