New Serbian PM to continue juggling EU ambitions and relations with Russia

New Serbian PM to continue juggling EU ambitions and relations with Russia
By bne IntelliNews June 28, 2017

Serbia’s Prime Minister designate Ana Brnabic announced on June 28 that her government will continue the work built on the “excellent foundations” left by the previous government under Aleksandar Vucic, who is now the country’s president.

Vucic was seen as taking a progressive step by giving a mandate to Brnabic, who is set to become Serbia’s female and first gay prime minister, as the country aims for EU membership. However, Vucic’s move will also increase his dominance of Serbian politics as he is expected to control Brnabic’s work. A close ally of the president without a lot of political experience, Brnabic is likely to toe the line set by Vucic. 

In an hour-long address to the parliament, Brnabic, the minister of public administration and local self-government in Vucic’s last government,  made it clear that she — like Vucic before her — would prioritise Serbia’s EU accession. 

At the same time, she stressed that Belgrade would pursue a “balanced” foreign policy, also aiming for good relations with China, Russia and the US. Several of her cabinet nominations also reflect the need to keep traditional allies such as Russia sweet, while progressing with EU accession negotiations. 

Teneo Intelligence CEO adviser Andrius Tursa wrote on June 28 that Brnabic’s proposed cabinet appointments signal a slight turn towards Moscow in the defence sector. 

“The proposed appointment of pro-Russian Aleksandar Vulin as defence minister and Nenad Popovic (leader of Serbian People’s Party) as a minister without portfolio, along with [Ivica] Dacic (from the [Serbian Socialist Party] SPS) who remains in charge of the foreign ministry, points to closer cooperation with Moscow, particularly in the defence sector, which could strain Serbia’s relations with Nato,” Tursa said in an analyst note. 

A controversial choice

Vulin’s nomination for defence minister has been largely criticised, even by those who were happy with Brnabic’s own nomination. Vulin is closely associated with the party led by the wife of former dictator Slobodan Milosevic, Mira Markovic. Markovic is currently in Russia, having escaped with their son from an international warrant Serbia issued for tobacco smuggling and tax evasion in the 1990s.

However, the choice of Vulin as defence minister is most likely not entirely a move to please Moscow. Vulin's party, the Movement of Socialists, has been part of the coalition led by Vucic’s Serbian Progressive Party (SNS) for years. Vulin himself is one of the most reliable of Vucic’s people and his upcoming appointment is more likely an attempt to reward him for his loyalty. 

Although his nomination has been criticised because it is seen as a potential turn towards Russia when the country officially wants to remain militarily neutral, his rhetoric is more ultra-nationalistic than pro-Russian. He is usually the official who speaks up when tensions with Kosovo or Croatia escalate. 

Even the US ambassador to Serbia, Kyle Scott, had a positive impression of Vulin, having worked with the Serbian politician when he was was labour minister in charge of the refugee crisis. Scott told regional public broadcaster Radio-televizija Vojvodine on June 27 that the US has an active program of cooperation with Serbia’s ministry of defence, and that Washington plans to fully support Brnabic as prime minister. 

Meanwhile, Popovic’s party has been part of the SNS’s coalition since the 2016 parliamentary elections. His ministry is likely a reward for his support for Brnabic and he will be expected to fend off any criticism from people in the party who are uneasy with her sexual orientation. A significant part of the SNS is still very conservative and Vucic said earlier that he had trouble convincing all of the members of the need to back Brnabic.

Economic continuity 

While some of her appointments caused controversy on political grounds, Brnabic also indicated that her economic policy would be a continuation of the course set under Vucic, with a focus on building on earlier successes in fiscal consolidation. 

“We can build our vision on the basis of the foundation set by the previous government: the state treasury is in good condition, the macroeconomic indicators are positive, the budget is in surplus, inflation is within the projected limits and there is also a downward trend in the public debt,” Brnabic told the parliament on June 28. 

“This government will continue with economic reforms, with the expectation that the growth of real GDP will be 3.5% per year based on the growth of investments, increased exports of goods and services, particularly of goods and services with a high added value, as well as a reduced share of public expenditures and the deficit in the current transactions in the GDP,” Brnabic said.

“Also, order has been introduced in public finances, for which the citizens recognised and bore the greatest burden of austerity," she recalled, and pointed out that these efforts by citizens and the government were recognised by the International Monetary Fund (IMF) and the World Bank. "We have successfully passed through six reviews within the IMF’s precautionary €1.2bn three-year Stand-By Arrangement [SBA], and currently we are undergoing the seventh one. I wish to point out that, at the end of this year, we will successfully complete the SBA with the IMF,” Brnabic stated, adding that her government plans to continue with the rigorous control of public expenditure.

According to Teneo’s Tursa, as a qualified business professional and a former minister of public administration, Brnabic would successfully continue a reform-oriented economic and fiscal policy agenda set by the previous government.

This follows on from the steps taken by Vucic’s first government, starting with the SBA, which was approved in February 2015. A pre-condition for the approval of the SBA was to cut public wages and salaries by 10%. Thanks to the SBA and the cut, Serbia succeeded in significantly reducing its budget deficit.

In 2016, Serbia managed to bring its general government budget deficit down to RSD57.06bn (€461.23mn), equal to 1.4% of GDP, also significantly lower than envisaged under the SBA. Initially, the planned gap for 2016 was RSD163.5bn or 3.9% of GDP, but this was lowered to RSD89.1bn or 2.1% of GDP after the IMF’s sixth review of the SBA in late 2016. Mainly thanks to the SBA, Serbia managed to reduce its budget gap to 3.7% of GDP in 2015 from 6.6% in 2014.

After Serbia was hit by the global economic crisis, its public debt ballooned from 28% of GDP in 2008 to over 70% at end-2014. Although this trend was reversed in 2015-2016, the debt to GDP ratio remained high at 72.9% at the end of 2016. The downsizing trend is expected to continue in 2017-2019.

Brnabic’s goal is to bring the deficit of the general government below 1% by 2019 while, with a further growth of GDP and a low deficit, she plans to bring down the level of public debt below 60% of GDP. 

 

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