Abstract
The outbreak of global health and, consequently, the economic crisis caused by the COVID-19 pandemic interrupted five years of positive economic trends in Serbia. To preserve economic stability, the government of Serbia took appropriate measures and provided support to micro, small, and medium enterprises. The chapter aims to evaluate the packages of economic measures introduced to reduce the negative consequences caused by the pandemic. The research covers the period from 2015 to 2022 (i.e., before and during the crisis and after the adopted economic measures). The analysis is based on officially adopted economic measures with a combination of macroeconomic statistical data and forecasts from the Ministry of Finance of the Republic of Serbia and the Fiscal Council of the Republic of Serbia. The results of the research indicate that the crisis caused by the COVID-19 virus did not cause a significant drop in economic activity in the Republic of Serbia, primarily due to the extensive package of aid to the economy, which amounted to 12.5% of GDP.
TopIntroduction
Covid-19 was first registered in December 2019 in Wuhan (China), caused by the SARS-CoV-2 virus. As almost the whole world was affected faster than anyone could have expected, on March 11, 2020, a pandemic was declared (WHO). As a result, there has been a significant blockade and closure of the economies. This caused a global recession, one of the biggest since the Great Depression of 1928. With the crisis, there is an increase in unemployment, so it is necessary to start the investment cycle, increase employment and thus restore the level of economic activity as before the crisis. The logic is completely justified, considering that with the strengthening of economic activity, one can expect higher tax collection, but also return the debts that were invested through state intervention. According to IMF forecasts, the pandemic of the COVID-19 virus will cause the greatest damage to developed countries, which will contribute to their slower economic growth compared to developing countries and countries in transition.
In early April 2020, when the COVID-19 pandemic was already in full swing, economists predicted that the overall situation that befell all world economies would lead to a major recession. The great decline in economic activity has led to a deepening of economic problems, an increase in the number of unemployed, a decline in living standards, but also a potential increase in poverty and inequality. Concerns have also been raised about the expectation that galloping inflation could force the central banks of many countries to cut aid packages. The decline of the world economy in 2020 was half as weak as in the 1930s, when the economy was down 10 percent. If we recall the global financial crisis that occurred in early 2009, when the global economic decline was 0.1 percent, it can be clearly seen that in its strength, and partly due to rapid geographical expansion, this crisis is significantly larger.
One of the questions that arises is what the new crisis means for globalization. Things will have to change, because companies and people have realized how much they have risked so far. The essence of a large part of globalization is not only in the transport of manufactured goods around the world, but also in the fluctuation of people, ideas and information. The idea that the essence of globalization is in moving production or supply chains to cheaper Asian countries is too simplistic. Of the 100 largest multinational companies in the world, as many as 42 companies said they faced the problem of maintaining business profitability. The uncertainty caused by this crisis has also had a negative impact on global investment. The application of restrictive measures in order to prevent and slow down the spread of the virus has strongly affected the economies of all countries, negatively affecting all economic indicators.
In order to mitigate the negative effects of the crisis, the Government of the Republic of Serbia has adopted the Program of Economic Measures. These measures aimed to help business entities in the country continue their business operations, but also to minimize the other effects caused by the COVID-19 virus pandemic. In this way, two objectives were to be met: (a) supporting the economy, especially the private sector, and (b) helping citizens to retain jobs and wages. The plan was for the economy, after the end of the pandemic, to continue where it left off and to develop even faster. Although the crisis caused by the virus, and which the economy is facing, is of a global character, the Republic of Serbia has pursued a responsible fiscal policy in recent years, which is why it has the opportunity to take on most of the burden of the crisis.
Key Terms in this Chapter
Tax Incentives: A tax incentive is an aspect of a country's tax code designed to incentivize or encourage a particular economic activity by reducing tax payments for a company in the said country. Tax incentives have traditionally been used by governments as tools to promote a particular economic goal. They are preferential tax treatments that are offered to a selected group of taxpayers and take the form of exemptions, tax holidays, credits, investment allowances, preferential tax rates and import tariffs (or customs duties), and deferral of tax liability.
Economic Policy: Economic policy refers to the actions that governments take in the economic field. It covers the systems for setting interest rates and government budget as well as the labor market, national ownership, and many other areas of government interventions into the economy.
Pandemic: An outbreak of a disease that occurs over a wide geographic area (such as multiple countries or continents) and typically affects a significant proportion of the population.
COVID-19: The name of the illness caused by the coronavirus SARS-CoV-2. COVID-19 stands for “coronavirus disease 2019.” A mild to severe respiratory illness that is caused by a coronavirus (severe acute respiratory syndrome coronavirus 2 of the genus Betacoronavirus).
Fiscal policy: Fiscal policy refers to the use of government spending and tax policies to influence economic conditions, especially macroeconomic conditions, including aggregate demand for goods and services, employment, inflation, and economic growth.
Budget: The budget is a document that contains a list of planned revenues and expenditures of the state for one year. The revenue plan shows how much money and from what sources the state plans to collect it, while expenditures show what the state intends to spend the collected money on. The state budget is prepared by the Ministry of Finance in cooperation with other ministries and budget users, according to a precisely determined procedure defined by the Law on the Budget System of the Republic of Serbia.