Dun & Bradstreet (DNB:US) Corp. lowered Serbia’s rating to the level of high-risk countries on evidence the economy weakened, the state deficit widened and no progress has been made toward European Union entry.
Slowing growth and increased spending pushed the seven- month fiscal gap to 111.2 billion dinars ($1.25 billion) and raised public debt to 57 percent of economic output, compared with a 45 percent legal cap. Dun & Bradstreet, which assesses business risk, moved Serbia from the moderate-risk group, saying it’s not likely the government will make significant spending cuts.
“On the contrary, the new government is refusing to cut public wages and pensions for political reasons,” the company said in an e-mailed statement today. “If the government fails to ensure a loan from the International Monetary Fund, the National Bank of Serbia will have to help the government with a policy change, currency devaluation and higher inflation, which will affect the country’s macroeconomic stability.”
Serbia’s path to the EU stalled after the new government of Prime Minister Ivica Dacic exerted undue control over the central bank, causing a mass resignation, and talks on the future of Kosovo, Serbia’s breakaway province that unilaterally declared independence in 2008, drag on.
The rating downgrade puts Serbia in a group of other high- risk countries including Greece, Russia, Azerbaijan, Georgia, Kazakhstan and Ukraine, leaving Bosnia-Herzegovina as the only former Yugoslav republic rated worse than Serbia.
The European Commission is expected to issue a “conditional” progress report on Serbia in October, postponing rewards that would have arrived for progress the country has made so far, including access to financial assistance and EU markets, Dun & Bradstreet said.
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