CHALLENGES OF FINANCING THE CURRENT ACCOUNT DEFICIT OF THE REPUBLIC OF SERBIA
Keywords:
current account deficit, remittances, foreign direct investments, external debt
Abstract
One of the central issues related to the presence of a current account deficit is related to finding sources for its financing. Developing countries, including the Republic of Serbia, due to the lack of capital and the disparity between domestic accumulation and investment spending find a solution for financing the current account deficit in the import of foreign capital, which results in financial balance surpluses. In conditions of insufficient inflow of foreign capital, an additional source of financing the balance of payments imbalance is borrowing abroad. The aim of the research is to identify the key sources of financing the current account deficit of the Republic of Serbia in the 2007-2022 period. The research results suggest that, although during the last few years the coverage of the current account deficit is largely provided by the net inflow of foreign direct investments, these funds are still not sufficient to ensure the financing of the deficit components of the current account of the Republic of Serbia. This is greatly contributed by the fact that one of the main deficit components is precisely the ever-increasing outflow of income that is realized on the basis of these investments. Due to all of the above, borrowing abroad is still used as an option for financing the deficit.
References
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31. Kovačević, R. (2022). The effects of FDI net inflow on the current account of Southeast Europe countries – a panel causality analysis. Economic Annals 67(235), 95-122. https://doi.org/10.2298/EKA2235095K
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2. Atanasijević, J., Čupić, V. (2019). Financial integration in new Europe – overview and implications for furhter growth polices in Serbia. Ekonomika preduzeća 60(1-2), 51-62. https://doi.org/10.5937/ekopre1202051A
3. Borio, C., Disyatat, P., (2015). Capital flows and the current account: Taking financing (more) seriously. BIS Working Papers No. 525.
4. Bošnjak, M. (2019). Determinants of Current Account in Cases of Serbia and Romania: Time-Varying Parameters Approach. South East Journal of Economics and Business. 14(1), 21-33. http://dx.doi.org/10.2478/jeb-2019-0004
5. Bucevska, V. (2017). Current Account Deficits in the EU Candidate and Potential Candidate Countries: A Panel Analysis. Economic Themes 55(3), 305-318. http://dx.doi.org/10.1515/ethemes-2017-0017
6. Burgess, R., Haksar, V., (2005). Migration and Foreign Remittances in the Philipines, IMF Working Paper No. 05/111.
7. Cota, B., Erjavec, N., Bogdan, Ž. (2017). External Imbalances in emerging and advanced European countries. Economic Research 30(1), 1553-1571. https://doi.org/10.1080/1331677X.2017.1340179
8. Čakajac, B., Janković, N., Luković, S. (2023a). The Role of Remittances in Financing the Current Account Deficit: The Case of Serbia. Our Economy. 69(3), 35-44. https://doi.org/10.18690/10.2478/ngoe-2023-0016
9. Čakajac, B., Janković, N., Luković, S. (2023b). Migration movements as a way of balancing the balance of payments of the Republic of Serbia. In: Regional development and demographic trends of Southeastern European countries. (pp 273-285). Faculty of Economics, University of Niš.
10. Delević, U. (2020). Employment and state incentives in transition economies: are subsides for FDI ineffective? The case of Serbia. UNCTAD Transnational Corporations Journal. 27(2), 31-63.
11. Dugalić, V., Kovačević, R., Janković, N. (2023). International Finances. Kragujevac: Faculty of Economics, University of Kragujevac.
12. Đukić, M., Bodroža, D. (2022). Diaspora Contribution to the Economic Development of the Republic of Serbia: Remittances and Investments. In: Redžepagić, S. et al. (Eds), Economic and Financial Implications of Covid-19 Crises (pp. 181-199). Nica: Université Côte d'Azur.
13. Edwards, S. (2002). Does the Current Account Matter. in Edwards, S., Frankel, J. Preventing Currency Crises in Emerging Markets. National Bureau of Economic Research.
14. Ercegovac, D. Beker Pucar, E. (2021). The nexus between FDI and external balance in selected Emerging European Economies – a panel data approach. The Annals of the Faculty of Economics in Subotica. 58(47), 147-164. https://doi.org/10.5937/AnEkSub2247147E
15. Fabris, N., Kilibarda, B. (2008). Analysis of the sustainability of the current account deficit of Montenegro. Working Paper No. 14. Central bank of Montenegro
16. Gabrisch, H., Hanzl-Weiss, D., Holzner, M., Landesmann, M., Poschl, J., Vidovic, H. (2016). Improving Competetivenes in the Balkan Region – Opportunities and Limits. The Vienna Institute for International Economic Studies. Report No. 411.
17. Ghosh, A., Ramakrishnan, U. (2006). Back to Basics: Do Current Account Deficits Matter? Finance&Development 43(4), 44-45. https://doi.org/10.5089/9781451922509.022
18. Gligorić, M., & Janković, I. (2013). Opportunities for greater remittances' channeling into savings and investments in Serbia. Ekonomski vidici, 18(4), 495-506.
19. Gligorić, M., & Janković, I. (2015). Improvement Possibilities of Remittances Economic Potential in Serbia. Quartal Monitor, 43, 48-55.
20. Janković, N., Stanišić, N. (2013). The current account deficit as a limiting factor for economic development of the Republic of Serbia. in Institutional changes as a determinant of the economic development of the Republic of Serbia (pp. 225-242) Kragujevac: Faculty of Economics, University of Kragujevac.
21. Janković, N. (2015). A twin deficit – the issue of the Serbian economy. Economic Horizons. 17(2), 107-132. https://doi.org/10.5937/ekonhor1502109j
22. Janković, N., Čakajac, B., Luković, S., & Mitrašević, M. (2022). The tourism sector as a determinant of reducing the balance of payments deficit in the Republic of Serbia. Hotel and Tourism Management. 10(2), 137-151. https://doi.org/10.5937/menhottur2202137J
23. Jushi, E., Hysa, E., Cela, A., Panait, M., Catalin Voica, M. (2021). Financing Growth through Remittances and Foreign Direct Investment: Evidences from Balkan Countries. Journal of Risk Financial and Management. 14(3), 1-17. https://doi.org/10.3390/jrfm14030117
24. Kalinović, M., Todorović, M., Marković, I. (2022). The Significance of ICT Services for the Balance of Payments in the Republic of Serbia. Economic Themes 60(2), 187-204. https://doi.org/10.2478/ethemes-2022-0011
25. Kastratović, R. (2016). The influence of foreign direct investments on economic and social development of Serbia. Banking. 45(4), 70-93. https://doi.org/10.5937/bankarstvo1604070K
26. Kovačević, R. (2016). International Finances. Belgrade: Faculty of Economics, University in Belgrade
27. Kovačević, R. (2017). Financing the current account deficit in Southeastern European countries. Banking 46(3), 96-111. https://doi.org/10.5937/bankarstvo1703096K
28. Kovačević, R. (2018). Structural and Cyclical Factors of Serbia’s Current Account. Economic Annals 43(217), 75-98. https://doi.org/10.2298/EKA1817075K
29. Kovačević, R. (2020). The Causal Relationship Between Current Account and Financial Account Balance in Western Balkan Countries- the Case of Serbia. Banking 49(4), 9-41. https://doi.org/10.5937/bankarstvo2004009K
30. Kovačević, R. (2021). Serbia’s foreign exchange reserve adequacy and the factors influencing their accumulation. Economic Horizons. 23(1) 33-53. https://doi.org/10.5937/ekonhor2101033K
31. Kovačević, R. (2022). The effects of FDI net inflow on the current account of Southeast Europe countries – a panel causality analysis. Economic Annals 67(235), 95-122. https://doi.org/10.2298/EKA2235095K
32. Marjanović, D., Beraha, I., Simović, V. (2021). The Impact of Import, Export and FDI on the Economic Growth of the Western Balkans Countries. Economic Analysis. 54(2), 20-29. https://doi.org/10.28934/ea.21.54.2.pp20-29
33. Milićević, D. (2006). Balance of payments and exchange rate. Belgrade: Institte of economic diplomacy
34. Ministry of Finance (2023). Public Finance Bulletin No. 227. available at: https://mfin.gov.rs/en/activities/bulletin-public-finances-july-2023-2
35. National Bank of Serbia (2023). Inflation report – february. Available at: https://www.nbs.rs/sr/drugi-nivo-navigacije/publikacije-i-istrazivanja/IOI/
36. National Bank of Serbia (2023). External debt of the Republic of Serbia. Available at: https://nbs.rs/en/drugi-nivo-navigacije/statistika/spoljni_dug/#
37. National Bank of Serbia (2023). Balance of Payments Statistics. Available at: https://www.nbs.rs/sr/drugi-nivo-navigacije/statistika/platni_bilans/
38. Radenković, I. (2016). Foreign Direct Investments in Serbia. Research Paper Series of Rosa Luxemburg Stiftung Sotuheast Europe No. 6.
39. Ratha, D. (2009). Remitances in Development: A Lifeline to Poor Countries. Finance&Development 46(4), 30-31.
40. Sanfey, P., Milatović. J., Kresić, A. (2016). How the Western Balkans can catch up. EBRD Working paper No. 186. London: EBRD
41. Stanišić, N. (2020). External economic imbalance of the Republic of Serbia. in Institutional changes as a determinant of the economic development of the Republic of Serbia. (pp 223-236). Faculty of Economics, University of Kragujevac.
42. Tmušić, M., Rapaić, S. (2022). Analysis of institutional determinants of the policy of attracting foreign direct investments in Serbia. Serbian Political Thought. 76(2), 27-54. https://doi.org/10.22182/spm.7622022.2
Published
2024/04/19
Section
Original Scientific Paper
