Serbia snapshot- world bank

RECENT ECONOMIC AND SECTORAL
DEVELOPMENTS
Growth and External Performance
After a modest economic recovery in 2011, when
real growth reached 1.6 percent, Serbia entered
into recession again in 2012. According to
preliminary estimates, the Serbian economy slowed
1.7 percent in 2012. Although the economy is in
recession, there was a small decrease in the
unemployment rate, which stood at 22.4 percent in
October, after reaching a peak in April 2012 of 25.5
percent.
In many ways, 2012 was very difficult for Serbia.
The year was marked by political instability
(presidential and parliamentary elections); closure of
the largest exporter (US Steel); and severe weather
(both winter and summer). As a result, the economy
is again in recession. Industrial output in the first
three quarters of 2012 was 4.5 percent lower than in
the same period of 2011. There was a short-lived
recovery of output in October, but industry declined
again in November (-3.4 percent, month-on-month).
Retail trade turnover contraction continued in
October, when turnover dropped by 10.9 percent
compared to the same month in 2011.
There were some positive developments,
however. According to the latest Labor Force
Survey in October, the unemployment rate dropped
to 22.4 percent, an improvement over the 25.5
percent from the April survey. The increase in
exports is due primarily to an increase in production
at the Italian carmaker, FIAT. Many new exports
also emerged, such as U.S. tire producer Coopers, as
well as some Italian textile producers. However,
according to the third quarter data, agriculture
output declined by nearly 20 percent through
September.
External adjustment in 2009–10 was significant,
but the current account deficit (CAD) has been
on the rise since 2011. After falling from 22
percent of GDP in 2008 to around 7 percent in
2009 and 2010, the CAD in 2011 jumped back to
about 8.9 percent. The CAD in the first three
quarters of 2012 reached €2.5 billion (or 8.5 percent
of projected annual GDP). There was some
improvement in the second and third quarters,
primarily due to a slowdown in imports. Still, the
CAD in the first nine months 2012 was 28 percent
higher than in the same period of 2011 (in euro
terms). The projection for the 2012 CAD is between
10.5 and 11.5 percent of GDP. In 2011, both
foreign direct investments (FDI) and portfolio
investments were significantly higher than in
previous years, which compensated for decreasing
financial loans. However, this trend reversed in
2012, when net inflows of FDI dropped to an
estimated €200. This is primarily due to the Serbian
Government’s repurchase of a stake in Serbia
Telekom from a Greek investor for €430 million.
The exchange rate was volatile through much of
2012, with the dinar having depreciated 8.7
percent against the euro. The National Bank of
Serbia (NBS) intervened in the foreign exchange
market throughout the year, primarily selling foreign
currency reserves to prevent a sharper depreciation
of the dinar. Overall, the NBS sold €1.4 billion in
the foreign exchange market. As a result, foreign
exchange reserves decreased €1.1 billion by the end
of 2012.
Going forward, it is important that the new
Government and the NBS make progress in
discussions with the International Monetary
Fund (IMF) in order to agree on a new program.
Figure 1. Real Economy Growth
-3.00
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GDP, quarterly growth rates
2010 2011 2012
Figure 2. Current Account Deficit, as % GDP
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2010 2011 2012

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The current IMF program is off-track and a new
one is expected to be discussed in May 2013.
Fiscal Performance
The fiscal deficit for 2012 is estimated to have
been 6.6 percent of GDP. While fiscal policy in the
first three years of the mandate of the previous
Government was in line with what was agreed with
the IMF under the Stand-By Arrangement (SBA)
program, there was a major fiscal slippage before the
elections. The previous Government increased
spending on all items, and in particular on wages
and subsidies. This led to a significant increase in the
budget deficit, which reached 3.4 percent of GDP
by June 2012. As a result, public debt increased
significantly to reach 61 percent of GDP by year
end.
Figure 3. Public Debt
The 2013 deficit target is set at 3.6 percent of
GDP, which represents a major fiscal
adjustment. With high and increasing public debt,
the Government needed to prepare a budget that
can bring the public debt back to a sustainable path.
It is important that the Government implements the
budget as planned and improve financial discipline,
including through the reduction of arrears.
Public Financial Management
After initial significant improvements in public
financial management, Serbia has regressed
over the last couple of years. According to the
Public Expenditure and Financial Accountability
(PEFA) assessment (from 2010), notable
improvements had been made in the effectiveness
of the treasury system, including the establishment
of improved financial control and accountability
arrangements and increased transparency in public
finances. The treasury manages a modern, integrated
information system incorporating a single chart of
accounts used by all budget organizations, and
controls payments through a single account in the
NBS. The organic Budget Systems Law was refined in
2009 and 2010 to incorporate improvements in
budgeting, accounting, financial control, internal
auditing, debt management, and fiscal responsibility,
but few of the changes have been fully implemented.
The coherence of the budget has been
endangered by the creation of numerous extra-
budgetary funds (2008–12), and the effectiveness
of the single treasury account has been weakened by
the introduction of own revenues among various
direct and indirect budget users. One of the first
decisions of the new Government was to bring back
on budget all own-revenues and to close a number
of extra-budgetary funds. Financial management
control and internal audit are moving toward
European Union (EU) standards, but there is still a
significant need to build capacity in this area across
government. The State Audit Institution (SAI) is
continuing to improve in capacity and scope, and
has increased the number of completed audits
covering the central government, local governments,
public enterprises, and the NBS.
The World Bank is supporting public financial
management through its Development Policy
Loan (DPL) program and through targeted
small grants. Bank support is helping, for example,
to improve debt management, support the
implementation of budget accounting rules at the
level of local governments, and provide specific
advice on the subject of fiscal responsibility.
Financial Sector
The Serbian financial system weathered the first
wave of the global financial crisis, but a weak
economic recovery and significant depreciation
resulted in a substantial increase in
nonperforming loans (NPLs) and a
deterioration in asset quality. Confidence in the
banking sector was affected in the first wave of the
crisis, which was reflected in the withdrawal of
almost 20 percent of household deposits from banks
in late 2008. Nonetheless, a conservative regulatory
approach had left the banking system with capital
and liquidity buffers large enough to withstand these
shocks. Confidence was restored through a
coordinated response by the NBS and the
Government, in close cooperation with the banking
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Jan-08
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in EUR (left axis)
as % GDP (right axis)
Fiscal Rule

3
community, international financial institutions
(IFIs), and the EU, under the Vienna initiative and
its more recent successor. As a result of these
measures, confidence gradually returned; household
deposits stabilized in early 2009 and have been
growing since then, and they are now at a record
level of about €8 billion.
In spite of that, with a very sluggish economic
recovery and the dinar’s depreciation trend (the
banking system in Serbia is highly euroized,
with close to 75 percent of loans in or indexed to
foreign currency), asset quality continues to
deteriorate. Gross NPLs have doubled, from 10.2
percent of overall loans in the third quarter of 2008
to 19.9 percent in the third quarter of 2012. Some
reassurance comes from the fact that the banking
system in general continues to have relatively
substantial buffers; the capital adequacy ratio (CAR)
of the entire banking sector is at 16.4 percent as of
the third quarter of 2012 (though down from 19.7
percent a year ago), and regulatory loan loss reserves
are at 122 percent of NPLs.
Figure 4. NPLs and Regulatory Loan Loss Reserves
Overall, banks are thus far generally managing
to withstand the pressures. However, individual
banks are facing significant challenges. A mid-sized
domestic bank recently failed and was bailed out by
the state; its assets and liabilities were subsequently
merged with another state-owned bank in late 2012.
More recently, another small state-owned bank was
bailed out using a similar mechanism. Going
forward, the main challenges will be to deal with the
large NPL overhang and to cope with the Eurozone
crisis contagion pressures (over half the banking
sector is owned by parent banks from Greece, Italy,
Austria, and Hungary). In addition, a specific set of
risks is linked to state-owned banks (eight banks that
control about 16 percent of the banking sector).
The World Bank supported building a more
efficient and stable financial sector as one of the
three key pillars of the Private and Financial Sector
Development Policy Loan (PFDPL) series. There
was additional, more recent Bank support via the
Private and Financial Sector Policy Based Guarantee
(PFSPBG), and previously through the Capital
Markets Technical Assistance.
Poverty and Social Protection
The recent downward trend in the incidence of
poverty in Serbia was reversed in 2009 by the
financial crisis. More than 200,000 people were
lifted out of poverty during 2006–08 as a result of
strong economic growth. However, the economic
contraction that started in 2009 brought about a
reversal in the national poverty headcount of 3.1
percentage points. At 9.2 percent at end-2010,
poverty increased well above the 2007 levels (8.3
percent). Rural areas were most affected. While the
incidence of urban poverty remained unchanged
between 2008 and 2009, in rural areas and Belgrade,
poverty became both more prevalent and deeper.
Furthermore, the data indicate that those at the
bottom end, who gained from the precrisis growth
period, were among those hardest hit by the crisis.
Figure 5. Poverty Incidence, %
The social assistance reforms introduced by the
Government were designed to mitigate the poverty
impact of the crisis, as they aimed to increase access
to means-tested programs, which are small relative
to other programs (0.4 percent of GDP). The largest
of them, the Financial Social Assistance (FSA),
formerly known as MOP (material support for
families), reaches only a fraction of the poor (only
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25
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(line, left scale)
NPL/total loans
(bars, right scale)
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2007 2008 2009 2010

4
6.7 percent of the poorest population quintile, and
only 40 percent of the extreme poor, according to
the 2007 Living Standard Measurement Survey
[LSMS]). The FSA covers the equivalent of 30
percent of the consumption of the population in the
bottom quintile.
In 2011, the Government adopted a new Social
Assistance Act governing the provision of last-
resort social assistance (LRSA), linking it to social
care and employment services. The act also removes
certain disincentives stemming from the design of
the social assistance programs to pursue a job search
and/or participate in public works. The recently
introduced reforms are expected to enhance the
adequacy of the FSA and widen the coverage to
households with three or more family members,
including by raising the limit for FSA recipients
from five to six per family. Simulations suggest that
the changes brought by the new Law on Social Welfare
could lead to an increase in the theoretical FSA
coverage by 22 percent (and thus benefit an
additional 11,828 households). Beneficiaries in the
bottom income decile would experience an 11
percent increase in benefits, which would result in a
3.5 percent increase in their disposable income.
However, the poverty impact of these reforms will
depend on the success of the outreach effort, the
elimination of administrative barriers, and the size of
the benefit increase.
Through the Public Expenditure Development
Policy Lending Program (PEDPL) program and
analytical work, the Bank has been supporting the
reform of the social assistance system, especially for
cushioning the impact of the economic crisis and
enhancing the coverage of the social assistance
programs going forward.
Health Sector
Recent trends in Serbia’s health indicators point
to steady improvement. Health outcomes have
improved significantly over the last decade, and
Serbia now has an epidemiological pattern like most
countries in Eastern Europe. Additionally, many
indicators are equal or better than those in the most
recent EU member states. Average life expectancy,
for example, at 73.7 years, is almost equal to
averages in the new EU members. The sector took
steps towards rationalization of the system by setting
the groundwork for productivity-based payment,
reducing the number of beds and staffing, increasing
copayments, and reducing the generosity of the
benefit package. However, the area of prevention,
especially with regard to noncommunicable diseases
(NCDs), remains inadequate.
Financing reform and improving efficiency in
health care delivery remain the main challenges
in the sector. Despite many improvements in
recent years, the health care system still suffers from
numerous inefficiencies and low productivity. The
Ministry of Health and the Health Insurance Fund
initiated financing reforms at both the primary and
secondary levels that will replace the input-based
system of financing in the health sector—in which
providers were paid according to historical
budgets—with a new system that will introduce a
productivity factor into the payment of providers.
For primary care, the Government opted for
performance-based payment (a formula
combining per capita, number of services, and
preventive care services). Under this approach,
patients register and get treated by an individual
doctor of their choice who then becomes the
primary point of contact, thus limiting the need for
referrals. A portion of the salaries of primary health
care providers would be directly linked to the
number of patients registered and the number of
services provided. All the preparatory steps for the
introduction of a productivity-based payment
system have been completed. The state provided the
legal ground for the implementation of this reform
by adopting the Amended Law on Salaries of Public
Servants in December 2011 and the relevant bylaws
closely defining payment in January 2012. Despite
protests from professional medical unions
requesting adjustments to the formula, the output-
Photo 1. Hospital in Zrenjanin is Part of the Health
Project Financed by the World Bank

5
based payment system linking a percentage of
salaries to productivity started in September 2012.
In the secondary, hospital level of care, the
Ministry of Health and the Health Insurance
Fund are moving towards a Diagnosis Related
Group (DRG) system. DRG is a hospital payment
system of care in which hospitals are paid on a per-
case basis, calculated on an average cost of treating a
patient during an entire episode. The DRG system
creates an incentive to increase the number of
treated cases, while at the same time minimizing
costs. International experience shows that
implementing such reforms can generate substantial
savings, while increasing productivity.
The Bank supports the health sector in Serbia
through the Delivery of Improved Local
Services (DILS). DILS is an investment that seeks
to improve the access to, and the efficiency and
quality of, local health, education, and social
protection services. Additional Financing for the
Health Sector Development Project, with the main
objective of building capacity for a performance-
oriented health care system, closed in March 2012.
The Government has asked for a new health project,
which would aim to further strengthen its capacity
to implement financing reform in health. The Public
Expenditure DPL series also supports policy
reforms in the health sector, specifically the
introduction of performance-based payments.
Education
Despite a relatively high level of public
expenditure on education, Serbia’s education
system is performing below international
averages in terms of student achievements.
Results of the Program for International Student
Assessment (PISA) in 2003, 2006, and 2009 revealed
that (a) Serbia’s 15-year-olds are performing below
the Organisation for Economic Co-operation and
Development (OECD) averages in reading,
mathematics, and science literacy, and (b) the
portion of students considered functionally illiterate
is still very high (roughly one-third of students
taking the PISA test). However, the PISA results
also revealed that Serbia’s students significantly
improved their scores between 2006 and 2009.
The key reform challenges in the education
sector in Serbia are the need to increase the
efficiency of public spending in education,
improve the quality of teaching and learning in
schools, and implement inclusive education policies
as legislated in the Framework Education Law of 2009.
The Government has been addressing these
challenges through: (i) efforts to optimize the
existing school network, consolidate class sizes, and
rationalize the education labor force, in order to
adjust the size of the education system to the
declining number of students; (ii) the piloting of a
draft formula for per student financing in 16
municipalities (10 percent of all Serbia’s
municipalities) during the school year 2011–12, as a
part of the per student financing reform; (iii) the
introduction of learning standards, a reform of the
final examinations at the end of compulsory and
secondary education, and efforts to strengthen the
schools’ external evaluation system; and (iv)
extensive work on introducing a mechanism to
support the inclusion of the most vulnerable groups
of children, including Roma and the disabled, into
the regular education system.
Figure 6. Progress in PISA Average Scores, 2006–09
The Bank has supported the education sector in
Serbia through multiple instruments. The DILS
project supports the delivery of local services in the
sectors of education, health, and social protection.
Until the fall of 2012, the Bank provided
multiannual support to the Serbia Education
Technical Assistance (TA) in order to help the
Government address the challenges in educational
quality and financing. The TA supported the
creation of expenditure databases for Serbia
covering 2005–10, using government budget data
and the BOOST methodology for the analysis of
public expenditure. Under this effort, a separate
Serbia Education Module for 2010 was created, with
data on school and municipal characteristics, student
achievements, and spending on education. The TA
included an assessment with recommendations on
monitoring student achievements, teacher policies,
and school finance strategies. Under the Public

6
Expenditure DPL series, the education sector is
working with the relevant Serbian institutions on
policy reforms to contain education expenditures by
right-sizing the network of schools and staff in the
sector, while in parallel, the DILS investment loan
supports the long-term effort of the Government to
shift financing to a per student modality.
Pending work in the education sector includes
implementation of TA with funding from the
Western Balkans Investment Framework
(WBIF), a multilateral instrument—including the
European Commission (EC), the European Bank
for Reconstruction and Development (EBRD), the
European Investment Bank (EIB), the Council of
Europe Development Bank (CEB), the World Bank,
and bilateral donors—established to support the
accession of Western Balkan countries to the EU.
In Serbia, the WBIF is financing the development of
systems to monitor education inclusion, with the
World Bank as a main implementing partner. Also,
the grant for the Poverty and Social Impact
Assessment of the per student formula piloting will
help Serbia’s Ministry of Education, Science and
Technological Development to mitigate the risks of
teacher redundancies and/or school dropouts once
the new financing reform is scaled up to the national
level.
Pension System
The Serbian pension system is the single largest
expenditure item in the state budget, and Serbia
has the second highest pension spending to
GDP ratio in the Europe and Central Asia
(ECA) region, second only to Ukraine. The
problems include a benefit level that is too high and
eligibility conditions that allow more than half of
new retirees to retire below the normal retirement
age of 65 for men and 60 for women. Both the
benefit levels and the retirement age were addressed
in the 2003 and 2005 pension legislation, but those
efforts proved to be insufficient to resolve the
problem.
In 2010, the Parliament approved new
legislation that gradually raises the earliest
retirement ages and limits the indexation of
pensions to bring the benefit levels closer to
international norms, thus enhancing the fiscal
sustainability of the pension system. Although the
changes introduced in the new law are rather modest
in scope, it is a step in the right direction. Along
with a mandatory pension system, there is also a
voluntary (third pillar) pension system supervised by
the NBS. Since 2008, the Serbian pension system
has been administered through a single Pension and
Disability Fund of the Republic of Serbia (PDF),
established through the consolidation of three
formerly separate funds (for employees, the self-
employed, and farmers).
For the past seven years, all of these reforms
have been supported by the Bank through a mix
of investment (Consolidated Collection and Pension
Administration Reform Project, otherwise called
PARIP that closed in September 2012) and TA
support. In addition, pension reform is at the core
of policy reforms supported through the Bank’s
ongoing Public Expenditure DPL series.
Agriculture
In Serbia, the agricultural sector has great
economic, social, and political significance. The
share of primary agriculture in Serbia’s GDP (in
constant 2002 prices) is currently 10 percent, and it
has been steadily decreasing over the last decade
(13.1–10.0 percent). The real annual growth rate of
the agricultural sector has mainly been negative over
the past 10 years, with the exception of 2008–09,
when it was boosted by soaring food prices on the
international market, which benefited Serbian
agricultural exports. In the same period, while the
average annual growth rate (AGR) of GDP was 4
percent, the average AGR of agriculture was only
0.9 percent.
Trade liberalization, particularly access to EU
markets, allowed Serbia to become a net food
exporter, although exports could be higher.
Increased access to EU and regional markets
through trade agreements created the conditions for
Serbia to become a net exporter of food. This was
recorded for the first time in 2005, with a surplus of
about US$255 million. In 2012, agri-food exports
amounted to over US$1 billion. The share of
agricultural products in Serbia’s total export grew
from 7.9 percent in 2011 to 8.5 percent in 2012.
Prices of many agriculture and food products in
Serbia show high volatility, rising higher than
EU prices in periods of shortage and dropping
lower than EU prices in times of surplus. This
volatility indicates a lack of competition and
efficiency in the marketing chains, and makes it

7
difficult to achieve a continuity of exports, with
obvious negative effects on consumers.
Market developments are also changing the
farm structures in Serbia, with the gradual
emergence of a commercial farm sector. There is
an increasing divide between those commercial
farms that have risen to the opportunities and
challenges of modern agricultural technology and
markets, and the many small farms that continue to
produce in traditional ways, marketing either
through informal channels or supplying processors
from a weak bargaining position. Such a structure is
not unusual in transition economies, but the
economic options for small farmers remain very
limited.
The relative importance of cereal production in
Serbia is the highest in Europe, while livestock
production is declining. The share of cereals in
the total production value in Serbia is the highest
among the European countries (34 percent in Serbia
vs. 11 percent in the EU), encouraged by the area
payment system. Meanwhile, livestock output is
declining rapidly in response to international
competition, with no effective policy response from
the Government.
The pursuit of EU accession will affect
agriculture more than any other sector, but it is
also the sector that will benefit the most. The
preaccession period requires great adjustments and
investments at all levels of the agriculture and food
industries. Serbian agricultural policy has created
uncertainty over the last decade, and has been
redesigned into a two-year cycle since 2000, leading
to an unstable political environment. This policy
uncertainty has had negative effects on investments
in the sector, as well as on its restructuring.
The performance of the sector is also affected
by public expenditure and legislation. The
agriculture budget needs to be restructured and
increased, as it is small by international standards
and its share in the total budget has declined from 5
percent in 2004 to 2.5 percent in 2012. However,
the size of expenditure for the agriculture and food
sector as a share of total public expenditure
increased in 2013 to 4 percent, which is still not
sufficient to fulfill the tasks of the Government
adequately. The main part of expenditure (over 80
percent) is used for area payments. This spending
focuses on a specific section of farmers with respect
to size, production, and region, which distorts the
production pattern. The decline in milk production
over the last several years is partly due to this
pattern of agricultural support.
If Serbia wants to become a member of the EU,
it has to develop a functioning market economy
in which the main role of the Government will be to
provide public goods and deal with market failure.
The approach to agriculture policy making must also
change; it will need to be based on evidence and
analysis of the underlying problems, not just on a
quick response to the perceived needs.
Figure 7. Agriculture Export Commodities,
Serbia 2012
There is a critical need for a balanced, well-
targeted, and consistent agricultural policy that
would be implemented under a multiannual program
with a multiannual budget. Strategic decisions are
needed to bring agricultural sector policy in line with
the EU Common Agricultural Policy (CAP).
The World Bank supports the agriculture sector
in Serbia through the Irrigation and Drainage
Project and the Transitional Agriculture Reform
Project.
Transport
The integration of the Serbian transport
network into the regional and Pan-European
network is crucial for Serbia’s economic and
social development. The National Infrastructure
Council prepared a plan for infrastructure
construction for 2008–12, which calls for some
€1.58 billion from IFIs for the completion of the
missing links on road Corridor X.
Vegetables Fruit Cereal Oil seed Livestock

8
Although roads are recognized as a key asset of
the country, the condition of the road network
remains poor, mainly due to the lack of
investments and very little new construction in the
last 20 years. Moreover, the quality of the overall
transport infrastructure declined further in the past
few years. According to the Global Competitiveness
Report (GPR) 2011–2012, Serbia is ranked 131st out
of 142 countries on the quality of roads, down from
117th out of 133 countries in the 2009–2010 GPR.
Total expenditures in the road sector have increased,
but this is due mainly due to road rehabilitation and
upgrading. Recurrent expenditures on maintenance
were stable for years at the level of US$383 million
per year until 2012, when they dropped significantly
as a result of the financial crisis and the
Government’s commitment to completing the
Corridor X Highway Project and the Belgrade
bypass. The above amount is close to what is
estimated to be required for normal maintenance.
However, there is a significant maintenance backlog
estimated at US$700–900 million.
The need to control the fiscal deficit in line with
set targets is likely to result in a further
reduction of expenditures on road maintenance
by 30 percent this year. The Government would
like to address the maintenance backlog issue and to
improve the overall quality of road infrastructure
through an IFI-supported road rehabilitation and
maintenance program, and has initiated a National
Road Network Rehabilitation Program to deal with
these concerns. The plan is to rehabilitate about
1,200 kilometers of road sections with the financial
support of several IFIs over the next 10 years. This
draws from the Ministry of Transport’s 2009
Transport Strategy and Master Plan that envisages
€4.6–€5.0 billion spent on maintenance between
2009 and 2027.
Notwithstanding a welcome drop in the total
number of fatalities recently, road safety
remains a major concern in Serbia and
represents a growing social and economic cost
for the country. Some estimates suggest that the
cost of fatalities could be as high as 0.8 percent of
GDP and the cost of serious injuries equivalent to
1.2 percent of GDP, based on 2008 accident figures.
The Government recognized the importance of road
safety and adopted a new road safety law in 2009.
That was the first major update in legislation since
the 1980s that incorporates many aspects of the EU
acquis communautaire.
The Bank supports the transport sector through
the recently closed Transport Rehabilitation
Project and the ongoing Corridor X Project. A
new Road Rehabilitation and Safety Project is under
preparation. All three projects aim to improve road
safety through the (re)construction and
improvement of the standards of the Serbia’s road
network.
Energy
The Government has led a remarkable
turnaround in the energy sector over the last
decade. Nevertheless, Serbia still faces the risk of
electric power shortages. Serbia is ranked poorly in
the 2013 World Bank Doing Business report with
respect to the reliability of electricity (it costs more
than five times the OECD average as a percentage
of GDP to establish a secure electricity supply), and
the Bank’s 2008 Business Enterprise and
Performance Survey (BEEPS) showed that 33
percent of firms considered electricity a problem,
more than double the level in 2005 and representing
Figure 8. Annual Fatalities and Injuries in Serbia
Figure 9. Road Conditions in Serbia
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Motorways Main Regional Total
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9
the sharpest increase in any of the obstacles
registered in the survey. The entire electricity system
is old, with low system reliability and low efficiency.
In generation, 53 percent of the power plants are
more than 30 years old and will have to be retired
over time, despite the ambitious rehabilitation
programs that are planned. Less than 25 percent of
the transmission lines and substations are in good
condition. As a result, capacity constraints in the
transmission system make it difficult to
accommodate new generation capacity (especially
renewables) and increased regional trade.
There is therefore an urgent need to invest in
new generation, transmission, and distribution
to address the supply gap and an unfinished
reform agenda. Already by 2008, generation
capacity was not able to meet peak demand. This
trend is expected to continue, with a gap of about
400 megawatts by 2015. Total investment needs to
address the supply gap are estimated at about €16
billion by 2020 (about 4 percent of GDP annually),
with the public sector able to provide no more than
a quarter of that amount. Hence, private sector
participation would need to increase from almost
nothing today to €12 billion by 2020. The new
Energy Law is a step in the right direction, as it
facilitates competition in the sector. Further
corporatization plans for EPS and EMS (state-
owned enterprises that produce and distribute
electric power, respectively) will also improve their
ability to compete in the market.
The Serbian economy is highly energy
intensive, and wastes a lot of this scarce
resource. Consumption of primary energy in Serbia
for every dollar of GDP is 13 times higher than in
Germany, 10 times higher than in France, five times
that in Slovenia, and almost twice that of Romania.
Problems in the energy sector reflect the cumulative
effect of policies that channeled mass subsidies to
firms and the population through cheap energy. This
stimulated excessive and wasteful consumption,
making the Serbian economy very energy intensive
and at the same time depriving the energy sector of
capital to develop its capacity to meet the growing
demand.
Compounding these challenges, the need to
comply with the strict environmental
requirements of the EU will call for yet more
funding. Existing large power plants will have to
reduce their emissions, and the required standards
will be tightened even more after 2016. Total
estimated investment requirements to meet EU
Directives in the power sector are on the order of
€800–€900 million.
The Bank has supported the energy sector of
Serbia through the Energy Efficiency Project
and the Energy Community of Southeast
Europe Program, whose goals are to improve
energy efficiency in public buildings and the power
transformation system. The Bank remains ready to
support Serbia’s energy sector in the process of EU
integration.
THE WORLD BANK PROGRAM IN
SERBIA
In May 2001, Serbia, together with Montenegro,
assumed membership in the World Bank. Since
2006, Serbia has been a World Bank member as
an independent country. To date, the Bank has
provided financing for 14 projects in various sectors
totaling almost US$1.5 billion of International
Development Assistance (IDA) credits and grants,
and International Bank for Reconstruction and
Development (IBRD) loans.
The lending envelope for the ongoing Country
Partnership Strategy (CPS) FY12–11 could reach
US$800 million, with the possibility of financial
assistance divided evenly between investment
operations and development policy lending. This
program, plus the allocation of an additional US$200
million for budget support to respond to the
economic crisis in the country, signals the Bank’s
commitment to Serbia.
Analytical and Advisory (AAA) Program: The
lending program is underpinned by strong AAA
activities carried out over the past several years as
well as new AAA activities. In particular, the CPS
was shaped by a comprehensive Country Economic
Memorandum - The Road to Prosperity: Productivity and
Exports, prepared with the Government and in
collaboration with the EC. Further, the PEDPL
series was fundamentally shaped by the Public
Expenditure Review (PER) carried out during the
previous CPS. The World Bank provided
multiannual TA support to the education sector,
with new TA grants, including the Western Balkans
1 The World Bank fiscal year (FY) starts on July 1 and ends on
June 30.

10
Investment Framework (WBIF) and the Poverty and
Impact Assessment of the Per Student Financing
reform (PSIA). At this time, it is finalizing work on
the Serbia Municipal PER.
In January 2013, the portfolio consisted of six
active investment projects for a total of US$619.2
million, and eight trust funds in the amount of
US$24.12 million. Overall, Serbia’s portfolio is
performing well, with the consolidated Investment
Lending (IL) project disbursement ratio at 35
percent and the FY13 disbursement ratio at 8.4
percent. Significant improvements in the
disbursements were recorded in FY12, with a FY12
disbursement ratio of 23 percent.
Two projects closed in the last six months of
2012 (Transport Rehabilitation and
Consolidated Collection and Pension
Administration Reform), and one will be
substantively restructured by the end of FY13 (Bor
Regional Development). By the end of FY13, two
more projects are scheduled to close: Transitional
Agriculture Reform and Energy Efficiency
Additional Financing, with a third project closing in
December 2013 (Delivery of Improved Local
Services Project). Two projects are currently under
preparation—one in the health sector and another in
transport.
In addition to the IDA2/IBRD portfolio, there is
a Multi-Donor Trust Fund for Judicial Reform
in the amount of US$6.1 million, and an EU
Instrument for Pre-Accession Assistance (IPA)-
funded Serbia Innovation Project in the amount of
US$10.56 million, as well as a portfolio of four
recently closed Institutional Development Fund
(IDF) grants and one grant funded by the Swedish
International Development Cooperation Agency
(SIDA) in the amount of US$3.02 million.
Serbia is a participant in the Road to Europe -
Program of Accounting Reform and
Institutional Strengthening (REPARIS). This
program helps countries to adapt laws and
regulations governing financial reporting and to
develop the related institutions, and also assists
countries in bringing their financial reporting
framework in line with EU requirements. REPARIS
is a Bank- and recipient-executed (hybrid) Multi-
2 By the end of the FY13, all IDA funded projects in Serbia will
close.
Donor Trust Fund (MDTF) currently funded by the
governments of Austria, Switzerland, and
Luxembourg, and managed by the World Bank
Centre for Financial Reporting Reform (CFRR).
International Finance Corporation
Serbia became a shareholder and member of
IFC in 2001. IFC works with private sector clients,
government, and civil society to bring the benefit of
global expertise to the country through its advisory
services and investment projects. As of December
31, 2012, IFC’s portfolio in Serbia was US$680
million. In FY12, IFC invested US$351.2 million
and mobilized US$152.8 million.
IFC’s priorities in Serbia include crisis
response, agribusiness, climate change, and
improvements in the investment climate. IFC is
also focusing its investment services on increasing
access to finance by supporting the development of
local financial institutions, especially ones that
concentrate on small and medium-sized enterprises
(SMEs). Across all sectors, IFC prioritizes
investment in Serbia’s less-developed regions and in
projects that contribute to greater economic
diversification and regional integration.
Recent IFC investment projects in Serbia
include:
- €57 million loan to Victoria Group to support
the development of the private sector in Serbia,
where revitalizing agribusiness is essential for
creating jobs.
- €50 million loan to Atlantic Group to support
development of agribusiness and cooperation in
the region (including Serbia) that is still
recovering from the crisis.
- €12.5 million loan to Serbia’s beverage maker
Vino Zupa to support the development of
agribusiness in the country.
- €50 million for a minority stake in Titan Cement
Cyprus, owned by Greek cement manufacturer
Titan Cement. The investment will support
Titan’s subsidiaries in the Western Balkans:
Cemertara Kosjeric in Serbia, Cementarnica
USJE in FYR Macedonia, and SharrCem in
Kosovo
- €70 million loan to the Serbian unit of Société
Générale to finance agricultural development.
- €45 million loan to MK Group, a Serbian food
producer, to modernize and expand production.

11
- €20 million loan to PMC Automotive Serbia, a
joint venture between Italian automotive
suppliers CLN Group and PROMA Group.
- €50 million loan to UniCredit, equally divided
between a housing line (focus on low-income
households) and an agribusiness line supporting
one of Serbia’s key sectors.
IFC has also invested in the following Serbian banks
and companies: Banca Intesa, Cacanska Banka,
Continental Bank, EFG, Komercijalna Banka,
Unicredit Bank, Vojvodjanska Banka, ProCredit
Bank and ProCredit Leasing, Farmakom,
Kronospan, and Porr.
Recent advisory projects include:
- The Balkans Renewable Energy Project
works to develop the renewable energy market,
with a special emphasis on small hydropower
plants (SHPPs) in Western Balkan countries
with the highest impact potential: Albania,
Bosnia and Herzegovina, FYR Macedonia, and
Serbia. Supported by the Ministry of Finance of
Austria.
- The Southeast Europe Tax Transparency
and Simplification Program works in Albania,
Bosnia and Herzegovina, Croatia, Kosovo, FYR
Macedonia, Montenegro, and Serbia to achieve
two objectives: simplify tax administration
procedures to reduce tax compliance costs,
particularly for SMEs; and improve the legal
framework and efficiency of the administration
of international taxation procedures, with a
focus on transfer pricing and double taxation
treaties. Supported by the Swiss State Secretariat
for Economic Affairs (SECO).
- The Western Balkans Trade Logistics
Project works in Albania, Bosnia and
Herzegovina, Croatia, Kosovo, FYR Macedonia,
Montenegro, and Serbia to achieve two
objectives: reduce the number of documents
and days needed for goods to be exported and
imported; and streamline procedures for the
flow of cargo by road, air, and river. The project
is supported by the European Union.
- Public-Private Partnerships: IFC provides
advice on designing and implementing public-
private partnership (PPP) transactions to
national and municipal governments to improve
infrastructure and access to basic services such
as water, power, health, and education. The
program is supported by donor partners Austria,
Norway, and Switzerland.

12
SERBIA: DELIVERY OF IMPROVED LOCAL SERVICES (DILS) PROJECT
Key Dates:
Approved: March 18, 2008
Effective: March 10, 2009
Closing: Original, December 31, 2012; Revised, December 31, 2013
Financing in million US Dollars*:
Financier Financing Disbursed Undisbursed
IBRD
Government of Serbia
Other Donors
46.40
0
0
25.23 19.20
Total Project Cost 46.40** 25.23 19.20
*As of January 14, 2013; Note: Disbursements may differ from financing due to exchange rate fluctuations at
the time of disbursement.
** N.B. The loan was made in Euros, and the USD amount changes in line with exchange rates.
Context at Project Design: The Government was considering the decentralization of service delivery and the accompanying reform of the
inter-governmental public finance system, which are both critical to improving health, education, and welfare outcomes in Serbia. In these
social sectors, decentralization was seen as a key feature of sector strategies adopted by the line ministries towards achieving the desired
improvements.
The Project Development Objective is to increase the capacity of institutional actors and beneficiaries in order to improve access to, and
the efficiency, equity, and quality of, local delivery of health, education, and social protection services in a decentralizing environment. Project
restructuring took place in July 2012, when the project description and the results framework were refined.
The range of sector issues addressed by the project include: (1) transforming financing models through the development of a public
financing framework that increases efficiency while compensating for inequities across municipalities and promoting rationalization of the
service networks at the local level; (2) improving access and equity through the use of new approaches and models for delivering services to
excluded groups; (3) improving accountability and quality by supporting sector ministries, local authorities, and other local service providers to
assume their new roles and responsibilities, including regulation, oversight, quality assurance, management, planning, budgeting, and service
delivery; and (4) supporting project implementation.
Results achieved to date:
Education
 Financing: National per student funding formula for preuniversity education (primary and secondary schools) developed, and local
formulas are being developed through the pilots. First pilot took place in 16 of Serbia’s municipalities (10 percent of all) in the school year
2011–12. Piloting to continue in 2013, in order to make further progress on adjustments to the local formulas;
 Access and equity: School and municipal grants are used in support of capacity building for inclusive education of children with learning
difficulties, disabilities, and/or socioeconomic disadvantages (including Roma), where schools and preschools benefit from teacher
training (21,000 participants), small civil works, and purchase of various teaching tools and equipment;
 Accountability and quality: Student learning outcomes are monitored through Serbia’s participation in the Program for International Student
Assessment (PISA) 2009 and 2011, Trends in International Mathematics and Science Study (TIMSS) 2011, and the Teaching and Learning
International Survey (TALIS) 2013, and the strengthening of the school external evaluation system.
Health
 Financing: With amended health legislation, current laws and bylaws allow the use of capitation- and output-based formula; and the
framework with methodology and criteria for allocation of equalization funds was developed (both PDIs met);
 Access and equity: Nearly 500 medical staff and associates trained to recognize the needs of vulnerable groups; 15 Roma health mediators
financed from the loan funds resulting in 3,600 vaccinated children, over 2,500 registered with a primary health care (PHC) physician, 600
pregnant and new mothers receiving health checks, and more than 1,200 women able to choose a gynecologist. In 2012, the Government
institutionalized Roma health mediators by funding their salaries from the Republic of Serbia (RS) national budget;
 Accountability and quality: 14 percent of PHC centers completed quality accreditation process; 31 out of the targeted 50 PHC centers
adopted clinical pathways; and 75 percent of PHCs use fully operational health management information system (HMIS) platform.
Social Protection
 Access and equity: Internal operating procedures of the Disability Fund of the Ministry of Labor and Social Policy (MoLESP) reformed to
enable funding of the results-oriented projects; and innovative services developed, piloted, and scaled up across the country (sign language
interpretation services for the deaf, and escort services for the blind and people with impaired vision);
 Accountability and quality: The development of the Management Information System in the MoLESP is making progress but more time is
needed for the development of software and the finalization of the WAN network covering over 260 centers for social work and other
social protection institutions.
Key Partners: The Bank team worked closely with (i) the Ministry of Health, Ministry of Education, and Ministry of Labor and Social Policy,
as beneficiary agencies; and (ii) the Standing Conference of Towns and Municipalities, as the key national partner in contact with local
authorities. Key Development Partners include the European Commission, the United Nations Children’s Fund (UNICEF), United
Nations Development Programme (UNDP), the UK Department for International Development (DfID), and the Swiss Agency for
Development and Cooperation (SDC).

13
SERBIA: ENERGY EFFICIENCY ADDITIONAL FINANCING
Key Dates:
Effectiveness: June 29, 2004
Additional Financing Approval: June 20, 2007
Additional Financing Effectiveness: November 13, 2008
Closing: April 30, 2013
IDA Credit
IBRD Loan
31
18
Total Project Cost 49 47.76 1.62
*As of January 14, 2013; Note: Disbursements may differ from financing due to exchange rate
fluctuations at the time of disbursement.
Context: The inefficient use of energy is a major concern in Serbia. Consumption of primary energy for every dollar of GDP is
significantly higher than in the EU. Serbia has a large, unrealized potential for energy-efficiency improvements in the building
sector. Various studies have revealed that buildings in Serbia have either very poor or no insulation, worn-out building seals, and
inefficient heating supply systems.
The Project Development Objective is to improve the energy efficiency in buildings in order to make heating more affordable
and to improve the functional and health environment of the users. An important associated objective is to reduce the local and
global environmental impact of the use of dirty fuels for heating buildings in Serbia. The project objectives will be achieved by
financing (i) energy system conversion and modernization of the Clinical Center (CC) of Serbia in Belgrade and of the Niš
Clinical Center; (ii) energy-efficiency improvements in about 62 public buildings (schools, hospitals, and social care institutions);
and (iii) technical assistance to the Serbia Energy Efficiency Agency.
The principal aim of the Additional Financing (May 2007) was to enable the Borrower to complete the original scope of the
project (energy-efficiency improvements in three social care buildings, but nine schools and six hospitals left out due to a cost
overrun), and to scale up energy-efficiency improvements to include: (a) rehabilitation of the heat supply system of the Niš
Clinical Center along with energy-efficiency improvements in all 17 contiguous buildings on the campus; complete retrofitted
lighting in a number of schools, and (b) energy-efficiency improvements in a number of social care institutions, schools, and
hospitals across Serbia.
Results achieved:
 Savings arising from the energy system rehabilitation are around US$2.5 million per year, and the earnings of the Clinical
Center of Serbia from delivering heat to third parties are around US$600,000;
 The results achieved and monitored at the four completed and monitored buildings retrofitted show (a) about 47 percent
savings in energy consumption, and (b) about 52 percent reduction in C02 emissions equivalent.
 The installation of energy-efficiency equipment and retrofitting in schools, hospitals, orphanages, and other social care
buildings included 26 primary schools and four buildings of the University of Kragujevac, 33 hospitals (out of which 17 in
Niš CC) and 10 orphanages, as well as complete lighting retrofits in 10 schools and partial lighting retrofits in 10 other
schools.
Key Partners:
The Bank team is working closely with the (i) Ministry of Mining and Energy of the Republic of Serbia, which is responsible for
overall project implementation; (ii) Ministries of Health, Education, and Labor and Social Policy of the Republic of Serbia, which
are the main beneficiaries and recipients of project funds; and (iii) Serbia Energy Efficiency Agency (SEEA).

14
SERBIA: IRRIGATION AND DRAINAGE REHABILITATION PROJECT
Key Dates:
Approved: July 12, 2005
Effective: March 6, 2006
Closing: May 31, 2013
IDA Credit 25.00 18.43 7.23
IBRD Loan 49.37 37.38 11.99
Total Project Cost 74.37 56.81 19.32
*As of December 31, 2013; Note: Disbursements may differ from financing due to exchange rate
Context: In the 1990s, the Serbian water sector suffered due to an inability to provide sufficient levels of operation and
maintenance funds for water-related infrastructure. Following a decade of economic sanctions and declining operation and
maintenance budgets, the flood control and drainage infrastructure deteriorated. The regulatory and legal framework, designed for
different socioeconomic conditions, was outdated and funds and arrangements were not in place. Following the democratic
changes in 2000, the Bank’s review of the water sector concluded that significant rehabilitation and reinstatement activities were
necessary to restore the functionality of the essential drainage and flood control infrastructure, in order to serve the needs of
Serbian agriculture. Additionally, there was a need for longer term institutional reform to make the sector more productive,
efficient, and sustainable.
The Project Development Objective is (a) to support the high-priority rehabilitation of the drainage and irrigation
infrastructure; (b) to reduce the risk of damage from flooding to people, land, crops, property, and infrastructure in project areas;
and (c) to improve water resources management and strengthen the associated water resource management institutions and
policies.
The project is addressing a range of interconnected sector issues by (1) financing the rehabilitation of the flood control, irrigation,
and drainage infrastructure; (2) providing support in raising the technical capacity of weather-forecasting institutions and financing
activities related to the provision of better conditions for flood forecasting; and (3) supporting the preparation of water-related
legislation and raising the capacity of water management institutions by adopting modern water management techniques.
 35 schemes for flood control and drainage have been rehabilitated, with over 400,000 hectares country-wide protected from
floods, providing an increased level of protection to over 1 million people; the work on eight others is ongoing.
 Four Water User Associations established, and two schemes are in rehabilitation with the use of counterpart funds.
 Procurement completed for the high-power Doppler weather radar for improved forecasting capacity of the Republic Hydro-
Meteorological Institute.
 Continued support to the development of water-related legislation including the Water Law (enacted in May 2010), as well as
the drafting of the Water Users Associations’ relevant legal documents, which is entering the final phase.
 As of December 31, 2011, 35 percent of technical staff of the Directorate of Water trained in water resources management
through trainings and study tours.
Key Partners:
The Bank team works closely with the Ministry of Agriculture, Forestry and Water Management (MAFWM) and its Directorate of
Water, which is responsible for overall project implementation. The beneficiaries also include the public companies Serbia Waters
and Vojvodina Waters, which are in charge of the operation and maintenance of flood control and drainage infrastructure, and the
Republic Hydro-Meteorological Institute, which is in charge of hydromet forecasting.

15
SERBIA: TRANSITIONAL AGRICULTURE REFORM PROJECT
Key Dates:
Approved: June 20, 2007
Effective: November 12, 2008
Closing: May 31, 2013
IBRD Loan
GEF Grant
13.82
4.50
10.21
3.61
3.47
0.89
*As of January 14, 2013; Note: Disbursements may differ from financing due to exchange
rate fluctuations at the time of disbursement.
Context: The predominantly small-scale Serbian farms and small, domestically oriented processing plants are currently
overwhelmed by strong regional and international competition and by stringent food quality and safety requirements. The
Government of Serbia Agricultural Strategy (August 2005) sets out a roadmap for growth and competitiveness based on: (i)
completing the move to a competitive market economy, (ii) increasing Serbia’s share of EU markets by harmonizing with
EU sanitary and phytosanitary (SPS) quality and agro-environmental requirements; (iii) improving competitiveness through
the adoption of modern, cost-effective production technologies; and (iv) promoting rural development, especially in poor
regions, through transparent, EU-type rural development grant mechanisms. The project was designed to support this
strategy.
The Project Development Objective is to enhance the competitiveness of Serbian agriculture. The global environmental
objective is to conserve the globally important ecosystem in the Stara Planina mountainous area. The project objectives were
to be achieved through public investments aiming to improve: (i) the Government’s system for delivering rural development
investment grants and evaluating their impact; (ii) the capacity of agricultural producers and processors to make use of these
funds; and (iii) the management of the Stara Planina Nature Park in partnership with local communities.
 An EU-compliant system for the transparent processing and efficient transfer of funds for agriculture and rural
development is being developed. A Payment Directorate has been established, supported by the project with technical
assistance, equipment, furniture, and vehicles. It is currently undergoing a process of preparation for EU accreditation
(so that it could process Instrument for Pre-Accession Assistance for Rural Development (IPARD) funds).
 The knowledge transfer system in agriculture has been strengthened by providing training to both public and private
farm advisers and through a grant program to support farm advisory services and applied research in agriculture. Some
25,000 farmers implement activities directly related to knowledge products developed with project assistance. There are
360 farm advisors accredited with special competences to provide extension service to farmers.
 The Management Plan for the area under environmental protection, the Stara Planina Nature Park, has been developed
by the Government of Serbia Park Managing Authority Srbijasume. The project supported Srbijasume with equipment
and technical assistance to build its capacity for the integrated management of the park. A visitor center has been
reconstructed, to be managed by Srbijasume. In the Stara Planina Nature Park area, almost abandoned three years ago,
an environmentally friendly grazing practice has been reestablished on around 3,000 hectares, some of which are
endangered pastures, and floristic composition of a high value is being utilized again as a result of 177 grants provided
to support local livestock farmers, agro-processors, and rural households in this region. Studies for the protection of a
geographical name for traditional products coming from this area were prepared, as well as a preparatory study for the
Stara Planina Biosphere Reserve nomination. Infrastructure rehabilitation projects for villages are financed.
 Farmers’ attitudes towards ecologically sustainable farming practices substantially improved and grants provided as an
incentive to adopt these practices; and infrastructure rehabilitation projects for villages financed.
Key Partners:
(1) The Ministry of Agriculture, Forestry and Water Management (MAFWM); (2) Delegation of the EU in Serbia; (3) U.S.
Agency for International Development (USAID); and (4) the Global Environment Facility (GEF).

16
SERBIA: CORRIDOR X HIGHWAY PROJECT
Key Dates:
Effectiveness: November 6, 2009
Closing: December 31, 2015
IBRD Loan
388.00
60.00
65.38
0
316.75
60.00
*As of January 14, 2013; Note: Disbursements may differ from financing due to exchange rate
Context: The integration of the Serbian transport network into the core regional transport network is recognized as a key
policy objective for the economic and social development of the country. The Serbian section of Corridor X, with its 792
kilometers of roads and 760 kilometers of railway lines, forms a part of the South East Europe Transport Observatory
(SEETO) regional “Comprehensive Network” and is a part of two important Pan-European transport infrastructure
networks. One is connecting Budapest with the Bulgarian capital of Sofia, and the other links Greece to the north.
The Government views the development of Corridor X as the country’s key transport priority that will help facilitate
sustainable economic development and ensure that the country capitalizes on its geographical position. The Bank was
requested to assist the Government with the preparation of the entire program for the two southern sections of Corridor X.
The Government also requested that the Bank contribute financing in parallel to the other international financial institutions
(IFIs) and the Hellenic Plan for the Economic Reconstruction of the Balkans (HiPERB). During project preparation, the
Bank led a review of the technical and economic viability, a review of the preparation of the Resettlement Policy
Framework, the two Corridor Level environmental impact assessments, and a review of the proposed engineering design.
The Project Development Objectives are to increase transport efficiency and improve traffic safety on the three project
sections of Corridor X, between Nis and Dimitrovgrad, and Grabovnica and Donji Neradovac, respectively, and to improve
road management and road safety in Serbia.
The project objectives will be achieved by financing (i) the construction of two sections of the motorway on E-75, totaling
31.9 kilometers between Grabovnica and Grdelica, and between Vladičin Han and Donji Neradovac; (ii) construction of
8.67 kilometers of the motorway on an E-80 section of the corridor between Dimitrovgrad and the border with Bulgaria
(Dimitrovgrad Bypass); (iii) technical assistance in the area of road safety; and (iv) implementation assistance and
institutional support.
 For the construction of two motorway sections between Grabovnica and Grdelica (5.6 kilometers) and between
Vladicin Han and Donji Neradovac (26.3 kilometers) on the E-75 road to FYR Macedonia, all four lots on the E-75
were awarded in March 2012. The works started in May 2012, and are expected to finish by September 2014.
 For the construction of 8.67 kilometers of the Dimitrovgrad Bypass—a motorway between Niš and the border with
Bulgaria, close to Dimitrovgrad (E-80)—the road construction on Lot 1 is at 54 percent of completion; on Lot 2, the
bridge is at 88 percent, while the tunnels construction on Lot 3 is at 15 percent of completion.
 A Lead Agency has been established under the new Road Safety Law, and the preliminary methodology for monitoring
road safety has been proposed.
 The Action Plan for the Reform of the Roads of Serbia (PEPS) has been prepared.
Key Partners: The Bank team worked closely with the Ministry of Infrastructure of the Republic of Serbia; Corridors of
Serbia, a limited liability company; and the public enterprise “Roads of Serbia.”
Key Development Partners include international financial institutions: European Bank for Reconstruction and
Development (EBRD), European Investment Bank (EIB), and the Hellenic Plan for Economic Reconstruction of the
Balkans.

17
SERBIA: BOR REGIONAL DEVELOPMENT PROJECT
Key Dates:
Effective: December 16, 2008
Closing: Original, September 30, 2012; Revised, March 31, 2013
IDA Credit
IBRD Loan
10.0
33.0
0
9.00
10.0
24.00
*As of January 14, 2013; Note: Disbursements may differ from financing due to
exchange rate fluctuations at the time of disbursement.
Context: Initially, the Project had a broader focus and aimed at the mitigation of poorly managed legacy sites from mining operations in Serbia’s
Bor region and social impacts from restructuring of the local RTB Bor mining and metallurgical company. With partial results from the job
creation component and uncertainty whether some of the project sites earmarked for environmental remediation could be redeveloped under
concessions to private investors, it was decided to comprehensively restructure the Project in early 2013 and focus the project on the
replacement of a collector under one of the mine tailing disposal facilities and discontinue or cancel all other activities.
The Project Development Objective is to support the GoS in addressing the structural hazard of the river water collector of the Veliki Krivelj
tailings disposal facility, which is one of the most urgent environmental legacy issues of the mining sector in the Bor region.
The Project focuses on: The replacement of the Veliki Krivelj collector (a 2.5 km concrete main pipe with a diameter of 3 meters) that rests at
the bottom of the mine tailings facility which has been constructed on top of it, is considered the most pressing environmental concern of the
original project interventions. The collector, carrying much more weight from the material above than what it was designed for, is in a very poor
condition and regular repair works have managed so far to maintain its integrity. Collapse of the collector would block the river discharge and
immediately jeopardize the stability of the massive mine tailings disposal facilities that have been constructed in the Kriveljska River valley. The
full replacement of the collector with a by-pass tunnel in hard-rock around the tailings disposal facility is considered the only viable solution to
eliminate this high risk.
Environmental liabilities of the mining sector in the Bor region:
 Conditions are in place to implement the works to replace the Veliki Krivelj collector, including the full design/technical specifications, the
Environmental Impact Assessment, construction permits, and the works contract signed; and
 All interface arrangements with RTB Bor are in place.
Fostering new sources of economic growth and job creation in the Bor region (component discontinued):
 Nearly 850 unemployed people benefited from the temporary employment programs (i.e. public works); as of June 2012, nine training
programs for over 600 unemployed persons were completed.
The reconstruction works of the future location of the Business Incubator in Majdanpek is completed. However, the registration of the
incubator, the selection of tenants, and the procurement of necessary equipment were not finalized. Under the microfinance program, as of June
2012, the OBS disbursed 53 loans. However, due to the slow disbursements resulting from low demand, the credit line is cancelled.
Key Partners:
The Bank team worked closely with (i) the Ministry of Energy, Development and Environmental Protection, which was responsible for
implementation of the environmental management and remediation component; (ii) Ministry of Economy and Regional Development, which
was focusing on socioeconomic regeneration activities; and (iii) Project Management Unit housed within the Privatization Agency.
Key Development Partners: Project preparation activities were funded by a Japanese PHRD (Policy and Human Resources Development)
grant while an EU-EAR grant financed TA for the restructuring and privatization of RTB Bor.

18
SERBIA: BUDGET SUPPORT
SERBIA PUBLIC EXPENDITURE DEVELOPMENT POLICY LENDING PROGRAM (PEDPL)
Key Dates:
Approval: PEDPL1: November 17, 2009; PEDPL2: April 28, 2011
Amount: PEDPL1: US$100 million; PEDPL2: US$100 million
Effective:
Disbursed in full: PEDPL1: January 2010; PEDPL2: October 2011
PEDPL3 currently in “stand-by” status, but it could be
processed quickly in the coming months, subject to
confirmation by the IMF that Serbia is implementing a sound
macroeconomic policy.
Context: The level of public spending in Serbia is high relative to other countries in the region. The Public Expenditure
DPL series is designed to help the Government create a smaller and more efficient public sector while improving the quality
of key social services. This DPL series consists of three programmatic operations (amounting in total to US$300 million). It
builds on previous World Bank work with the Government of Serbia as supported by previous Structural Adjustment
Operations and is complemented by another DPL series aimed at supporting Serbia’s private and financial sector
development.
The Project Development Objective was to help reduce the size of Serbia’s large public sector by supporting reforms that
would help improve the productivity of public spending. It was structured around three key policy areas:(i) public
expenditure allocation reforms aimed at restraining growth in public sector wages and pension obligations; (ii) public
expenditure management reforms aimed at improving efficiency in the education and health sectors and addressing
weaknesses in budget planning, procurement, financial reporting, and debt management; and (iii) reforms in social assistance
to cushion the impact of the economic crisis and enhance the coverage of social assistance programs going forward. The
reform program has been done in phases, with PEDPL1 focusing on overarching public expenditure reforms and PEDPL2
focusing on containment of the public wage and pension bills. A proposed PEDPL3 will focus on expenditure
rationalization in the social sectors, including payment reform in health and rationalization of the school network.
Expected Results:
The expected overall outcome of the operation was an improvement in the quality and efficiency of Government spending.
This would assist the Government in bringing about the necessary reduction in aggregate public spending levels over the
medium term while improving the current levels of service delivery. Key outcome indicators included:
 Wage spending as a share of GDP fell from 11 percent in 2009 to 10 percent in 2011;
 Pension spending as a share of GDP fell from 14.3 percent in 2009 to 12.7 percent in 2011;
 A minimum of 10 percent of salaries of primary health care providers were calculated based on performance;
 A per capita financing system in primary and secondary education was virtually piloted in at least five municipalities;
 Multiyear fiscal planning improved;
 Internal controls for non-salary spending and the effectiveness of internal audit improved;
 The scope, nature, and follow-up of external audit improved;
 Government debt management improved, as evidenced by (i) completion of a borrowing plan for 2012 based on the
Government’s 2011 strategy, and (ii) the updating of the medium-term debt management strategy, including analysis of
main market risks;
 Last-resort cash assistance coverage increased.
Key Partners: The Bank team worked closely with the Ministry of Finance and Economy of Serbia, which was coordinating
the overall dialogue, as well as with sector ministries.
Key Development Partners included the IMF and the EC. The EC also provided budget support and had an extensive TA
agenda in the area of public financial management. The Bank regularly convened a donor meeting group consisting of
donors in the area of public financial management.

19
SERBIA: JUSTICE SECTOR SUPPORT
MULTI DONOR TRUST FUND FOR JUSTICE SECTOR SUPPORT (MDTF-JSS) IN SERBIA
Key Dates:
Approved: November 2008
Effective: January 2009
Closing: June 2012
Financing in thousand US Dollars*:
MDTF
*Source MyTF as of January 2013; Note: Disbursements may differ from financing due to exchange
rate fluctuations at the time of disbursement.
Context: Since its political transformation in 2000, Serbia has accelerated its justice sector reforms, recognizing their
importance for EU accession. The reform efforts were focused on strengthening governance, improving the business
climate, combating corruption, and improving state accountability and effectiveness. However, the overall reform impact so
far has been less than anticipated; public trust and confidence in the judiciary remain low, institutional capacity constraints
affect reform coordination, and the implementation of fragmented donor-financed projects and programs have overtaxed
the already low capacity of the Ministry of Justice (MOJ), whose overall ability to coordinate, prioritize, sequence, resource,
and implement a multiyear sectoral strategy remains weak.
The Project Development Objective was to facilitate the acceleration of Serbia’s EU integration pertaining to the justice
sector by providing an appropriate financing vehicle, the necessary tools, focused short-term analytical and policy advice,
and capacity-building technical assistance to Serbia’s MOJ and judiciary.
This “hybrid” Trust Fund (TF) consists of five components, where the second component is executed by the Client and
other components are executed by the Bank. Component 1 provides advisory services to strengthen justice sector reform in
the areas of: (i) Institutional Capacity Building of MOJ, the judiciary, and the Ministry of Finance and the Economy
(MoFE); (ii) Resource Management and Aid Coordination; (iii) Legal and Institutional Environment; (iv) Judicial Facilities
and Infrastructure; and v) Outreach, Monitoring, and Evaluation. Component 2 provides technical assistance in the same
five areas, as well as in the area of access to justice. Component 3, 4 and 5 cover supervision, administration, and program
management of the TF.
Results achieved:
Recipient-Executed
The MOJ (i) created a Project Implementation Unit and a Reform Facilitation Unit, staffed with short-term and long-term experts in
judicial reform; (ii) mobilized resources for the development of a comprehensive IT strategy for Serbia’s justice sector, with the strategy
to be finalized by December 2012; (iii) shared leadership and organization of the Partners’ Forum; and (iv) in the area of access to
justice, drafted the new Law on Free Legal Aid, to be reviewed by the ministry in 2013. The MDTF will support its implementation
through the training of free legal aid providers and an outreach program for free legal aid users.
Bank-Executed
 Supported the Ministry of Justice in the transformation process of the MDTF-JSS to a hybrid facility;
 Through advisory work, supported the production of a set of products: (i) through the Review of the Results and Implementation
Status of the 2006 National Judicial Reform Strategy and the facilitation of the collaborative effort, assisted the MOJ in developing
the National Judicial Reform Strategy 2012–2017; (ii) supported the baseline survey of justice sector performance and service
delivery in 2010; and (iii) delivered the Judicial Public Expenditure and Institutional Review in early 2012;
 In the area of resource management, the capacity-building program to support the introduction of an automated case management
system in courts of general jurisdiction was completed in 2010;
 In the area of legal and institutional environment, a Review of the Criminal Chain Process was finalized by December 2012;
 The TF has a critical role in coleading the work of the Partners’ Forum that brings together the representatives of international
donor partners who are the TF contributors;
 As an outreach tool, a TF website was established (http://serbiamdtfjss.org).
Key Partners:
The Bank team worked closely with (i) the Ministry of Justice of the Republic of Serbia; (ii) High Judicial Council, State Prosecutorial
Council, Republic Prosecutor Office, and other key justice sector institutions, and (iii) MDTF-JSS Contributing Partners (SIDA, DfID,
the Governments of Switzerland, Slovenia, Denmark, the Netherlands, Spain, and Norway).
Key Development Partners included the EU Delegation in Serbia, USAID, and the Organization for Security and Cooperation in
Europe (OSCE), with which the Bank team coordinated closely on reform priority issues.

20
SERBIA: INNOVATION PROJECT (TRUST FUND)
Key Dates
Closing: November 30, 2014
2011 IPA funds 10.56
Recipient-executed 9.6 1.72 7.87
Bank-executed 0.96 0.29 0.67
Total project cost 10.56 2.01 8.54
*As of January 14, 2013; Note: Disbursements may differ from financing due to
exchange rate fluctuations at the time of disbursement.
Context: As it approaches EU accession, Serbia is focused on enhancing its competitive positioning by promoting
knowledge-based economic growth. This growth is likely to be a factor in both productivity improvements from technology
upgrading in the short term and innovation generated by internationally oriented dynamic firms in the long term.
In an attempt to modernize the national innovation system, the Government of Serbia has implemented a series of reforms
focused primarily on the public research and development (R&D) sector, including science infrastructure improvement.
Research and Development Institutes (RDIs) are the primary recipients of public financing. Technology transfer and
diffusion from RDIs is quite low, with only a few spin-offs and real technology-based start-ups, indicating the need to place
greater emphasis on supporting the various stages of technology development and innovation within enterprises. This
project addresses some missing elements of the Serbian innovation system and ailing aspects of the research sector that are
likely to be vital for improving Serbia’s long-term competitiveness.
The Project Development Objective is to assist in building the institutional capacity to stimulate innovative activities in
the enterprise sector by: (i) supporting the operationalization of the Serbia Innovation Fund (IF); (ii) piloting financial
instruments for technological development and innovation in enterprises; and (iii) encouraging selected RDIs to engage in
technology transfer and commercialization, and assisting in formulating RDI sector reform policy.
Results achieved
Recipient-Executed
Capacity Building of the Innovation Fund (IF):
 Strong advisory team established in the IF, including Strategic, Operations, and Regional Advisors.
 Diaspora-led Investment Committee established, with experience in venture funds, and the technology and research
sectors.
 IF staff trained internationally on due diligence and management of innovation support programs.
Implementation of Financial Instruments to Support Enterprise Innovation:
 Two grant programs (Mini and Matching) established to finance innovative ideas in start-ups and technology
development in existing firms.
 Two calls for proposal conducted: 11 firms financed in the first round and 14 in the second round.
Bank-Executed
TA to Research and Development Institutes:
 Detailed technical assessment reports delivered to three RDIs, focused on improving management, technology transfer,
and commercialization practices.
 In September 2012, the Bank team delivered a two-day workshop on RDI institute management.
 Mini Policy Note on the RDI sector delivered upon the request of the Ministry of Education, Science and
Technological Development (MoESTD), to guide the Government’s RDI sector reform program. The Note was
discussed at a high-level workshop in December 2012, with representatives from MoESTD, RDIs, universities ,and
enterprises.
Key Partners: The Bank team works closely with (i) the MoESTD, which is leading the science, technology, and innovation reform
program in Serbia, (ii)the IF, which is implementing Components 1 and 2 of the project, and (iii) Serbian RDIs, the main recipients of
TA under Component 3. Through the project Steering Committee, the team also engages the Ministry of Finance and Economy, the
National Council, and the EU Delegation.
Key Development Partners include the European Commission. The EC is funding this initiative through European Union Instrument
for Pre-Accession Assistance (IPA) 2011 funds that support the national innovation system.

21
Projects Closed in the Last Six Months
(IBRD, IDA)

22
SERBIA: TRANSPORT REHABILITATION PROJECT
Key Dates:
Approved (IDA): May 25, 2004
Effectiveness (IDA): September 7, 2004
Closing date (IDA): June 30, 2011
Additional Financing Approval (IBRD): June 20, 2007
Additional Financing Effectiveness (IBRD): December 16, 2008
Closing date (IBRD): September 30, 2012
IDA Credit (closed)
IBRD Loan
57.3
50
7
56
41
7
1.3
9
0
Total Project Cost 114.3 104 10.3
*Source Client Connection as of August 1, 2012; Note: Disbursements may differ from financing due
to exchange rate fluctuations at the time of disbursement.
Context: The integration of the Serbian transport network into the core regional transport network is recognized as a key
policy objective for the economic and social development of the country. The road network in Serbia represents a major
asset for the country, but the condition of the network remains poor. A recent survey revealed that while 30 percent of the
total network, primarily the main and regional roads, was found to be in good condition, 53 percent was in poor or very
poor condition. In addition, Serbia’s ranking in international comparisons (The Global Competitiveness Report 2011–2012)
indicates that infrastructure is placing Serbia at a competitive disadvantage in doing business compared to selected regional
comparators. The project represented the first major program to improve maintenance on the main and regional road
networks over the last 15 years.
The Project Development Objective was to assist the Government in reducing costs and improving safety for road users
through: (a) improving the condition of selected road sections of the main and regional road network; (b) improving the
effectiveness of road maintenance through the introduction of performance-based contracting in two pilot regions (Mačva
and Kolubara); and (c) introducing safe road design principles, road safety audits, and targeted improvement measures.
The Project financed (i) institutional strengthening, which included technical assistance, training, services, and the
improvement of the road asset databases, as well as the establishment of a computerized system for contract management
and improving the procurement and supervision of road works; (ii) consultancy services for the supervision of road
maintenance and rehabilitation works, and equipment, materials, and supplies for improved road management capability;
and (iii) the enhancement of road maintenance, rehabilitation, and road safety, including the rehabilitation of priority
sections of the main road, as well as performance-based road maintenance, on a pilot basis, in the regions of Mačva and
Kolubara.
 The project included a major program of rehabilitation of 10 sections under IDA funding and nine sections under
IBRD funding. In total, 281 kilometers of roads were rehabilitated and another 40 were expected to be completed by
September 30, 2012. In addition, road safety interventions and redesign were undertaken on 18 “black spots.”
 The project assisted in establishing a functioning asset management system to allow the professional management of the
road network, and technical assistance to harmonize road construction and design standards according to good
international practices.
 In addition, the project has piloted, for the first time in the Western Balkan countries, the undertaking of winter and
routine maintenance on an output basis on 1,200 kilometers of roads in the Mačva and Kolubara regions. This approach
realized significant benefits, with the cost of winter maintenance falling to about 50 percent of the average from the
remainder of Serbia.
Key Partners:
The Bank team worked closely with (i) the Ministry of Transport, which was responsible for the overall project
implementation and (ii) the Public Enterprise “Roads of Serbia,” the main beneficiaries and recipients of project funds.

23
SERBIA: CONSOLIDATED COLLECTION AND PENSION ADMINISTRATION PROJECT
Key Dates:
Approved: May 5, 2005
Effective: December 20, 2005
Closing: Original: September 30, 2010; Extended: September 30, 2012
IDA Credit
Other Donors
25.00
0
0
18.00 7.00
Total Project Cost 25.00
*As of June 2012; Note: Disbursements may differ from financing due to exchange rate fluctuations at
the time of disbursement.
Context at Project Design:
With total expenditures rising from 11.2 percent of GDP in 2001 to almost 16 percent of GDP in 2004, and a deficit of 5.5
percent of GDP, the Serbian PAYGO pension system was imposing a significant burden on the Government’s fiscal
accounts. The project was designed to contribute to sustainable reductions in the fiscal deficit. The then pension system was
operated through three separate pension funds, which were reformed by the Law on Pension and Disability Insurance (2003), and
the Law on Compulsory Social Insurance Contributions (2004). Major changes included a rise in the retirement age; a rise in the
minimum age at which the pension can be drawn; an increase in the averaging period for the salary on which the pension is
based; the introduction of a point system, whereby each individual receives points for every year of contribution, with the
number of points per year depending on the individual’s contribution wage relative to the average wage; a reform of the
pension indexation; tightened criteria for determining disability; and the establishment of a minimum pension at 20 percent of
the average wage.
Project Development Objectives were to develop a framework to consolidate the collection of all social contributions and,
if feasible, personal income taxes; to improve the effectiveness and efficiency of Serbia’s pension system through the
modernization and streamlining of its institutional capacity to improve administration; and to develop the capacity for policy
identification and analysis, monitoring, and increased public understanding of the pension system. In August 2010, the
Government of Serbia was granted a first extension of the project closing date to September 30, 2011, and another extension
to September 30, 2012 to finalize the activities envisaged under the project and meet project development objectives.
 As envisioned by the Pension Law and supported by the Pension Administration Reform Project (PARIP), in January 2008, the three
public pension funds were consolidated into a single Republic Pension and Disability Insurance Fund (RPDIF). The project supported
the preparation of a strategy for the new fund, which is currently under implementation. As of January 2012, the Military Pension
Fund was made part of a single RPDIF, which was not envisioned by the original project design.
 The concept of the new consolidated collection and reporting system was agreed to and translated into the Law on Central Registry of
Mandatory Social Insurance, adopted by Parliament in May 2010, de iure establishing the Central Registry (CR) as an independent
institution. Data registries at the Tax Administration and the Pension and Disability Insurance Fund have been improved to allow the
preparation of a unified database for the CR.
 The capacity for pension policy development has been strengthened through various trainings for the Department of Pension Policy
in the Ministry of Labor and Social Policy and the Department for Voluntary Pension Insurance within the National Bank of Serbia,
which is in charge of supervising the third pillar of pension insurance in Serbia. An extensive public information campaign was
completed, based on public opinion poll data on the pension system.
 In August 2011, the CR entered the phase of contract implementation for the CR Information System to develop a CRIS software
solution and enable the CR to purchase needed hardware. The hardware is in place and the software is in the testing phase. The PDO
related to setting up the Central Registry of Mandatory Social Insurance has been partially achieved, given that the new system’s
operationalization, and the full accomplishment of this dimension of the PDO, depends on the adoption and enactment of technical
amendments to legislation that establishes legal conditions for full, real-time CRIS system implementation only after January 1, 2013.
The Government is currently engaged in the legislative process leading to the adoption of the respective amendments.
Key Partners: The Bank team worked closely with (i) the Ministry of Labor and Social Policy and the Ministry of Finance, as responsible
agencies, as well as with the Cabinet of the Deputy Prime Minister in charge of pension policy reform; and (ii) a set of beneficiary
institutions, including the three Public Pension Funds, now consolidated into a single Republic Pension and Disability Insurance Fund, Tax
Administration, Health Insurance Fund, the National Employment Services, and the Central Registry of Mandatory Social Insurance. Key
Development Partners included the U.S. Agency for International Development (USAID), with which the Bank team coordinated on
policy issues.

25
SERBIA: VINO ZUPA
Key Dates:
Approved: May 25, 2012
Signed: June 7, 2012
IFC financing (million US Dollars):
Financier Amount Fiscal Year
Loan 16.52 2012
Originally established in 1956, Vino Zupa was privatized in 2002 through an auction and listed on the Belgrade Stock
Exchange. Following a successful turnaround post privatization, the company has exhibited strong growth, with
production per annum increasing from 2 million liters to over 90 million liters in 2010. In the process, €53 million
was invested in new equipment and upgrades in order to add new capacity and improve efficiencies, remove
production bottlenecks, and settle prior obligations to workers and third parties. IFC’s project consists of a corporate
loan of up to €12.5 million (equivalent $16.52 million) to be used for capital investments, including additional bottling
and fruit concentrate capacity and investment in the energy block (€3 million); wastewater treatment improvements
(€1.5 million); refinancing of a portion of its existing debt on a longer term basis (€6 million); and the provision of
additional, permanent working capital (€2 million).
The Project Development Objective. IFC provided Vino Zupa with long-term financing that is currently not
possible to secure from commercial banks or capital markets locally. By providing a loan to Vino Zupa, IFC is
supporting the development of the private sector in Serbia, where revitalizing agribusiness is essential for creating
jobs and lowering a 20 percent unemployment rate.
The development impact of the Project is expected to include:
 Strengthening of agribusiness linkages and indirect support to farmers;
 Support of a company based in a frontier region in southern Serbia, one of the least-developed areas in the
country;
 Support of an agriculture company involved in value added production and exports in a sector important to
the Serbian economy; and
 Job preservation in a severely underdeveloped region where a substantial portion of the local population
depend on the company for their livelihoods.
IFC’s expected additionality includes:
 Longer tenors: provision of long-term financing at reasonable rates suitable to the company’s needs that is
otherwise not readily available in the market;
 Financing in a crisis: provision of permanent working capital, reducing refinancing risk; and
 Environmental and social standards/implementation: provision of financing and expertise in environmental,
health, and safety standards by assisting the company in bringing its wastewater filters into compliance with
IFC Performance Standards and EU norms.
Key Partners: N/A.

26
SERBIA: VICTORIA GROUP
Key Dates:
Approved: February 2012
Signed: February 2012
Loan 74.13 2013
Victoria is a leading agro-industrial group in Serbia with a primary focus on processing soybean and sunflower
oilseeds and grain trading. The Group employs over 1,800 people. IFC’s loan of €57 million (equivalent
US$74.13 million) will be used to finance the Group’s permanent working capital financing needs and
restructure the Group’s debt financing towards a longer term, more stable structure that is suitable for the
nature of the Group’s operations. The long-term facility will be used partially to provide input financing to
farmers needed to produce oilseeds for processing on the Group’s plants. Thereby, IFC’s investment is
expected to strengthen the support to farmers and increase the sustainability of the Group’s operations.
The Project Development Objective. IFC provided Victoria Group with long-term financing that is currently
not possible to secure from commercial banks or capital markets locally. By providing a loan to Victoria Group,
IFC is supporting the development of the private sector in Serbia, where revitalizing agribusiness is essential for
creating jobs and lowering a 20 percent unemployment rate.
 Strengthening of agribusiness linkages and support to farmers: given the strong linkages of Victoria
Group with farmers, provision of longer term permanent working capital will help ensure stable access
of pre-harvest financing to farmers;
 Job preservation: the Group employs about 1,800 people across its operation and collaborates with
about 400 partners, which in turn supply the Group from over 25,000 farmers;
 Increase tax revenues: IFC’s investment will contribute to the growth of government revenues from
taxation; and
 Addressing food security concerns: IFC’s investment will contribute to food security and to meeting
the challenges of increasing demand and the food crisis.
 Crisis response and countercyclical support: In light of the fluid economic situation in Serbia in the
context of the Eurozone crisis, the local banking sector has cut liquidity on the domestic market.
Through the project, IFC is stepping up its presence on the local market, helping to restore confidence
and increase investment in Serbia.
 Diversified funding base: At a time of financial strain for local banks, IFC is starting its relationship
with Victoria, a new partner that will benefit from a further diversified funding base as a result of IFC’s
presence.
Key Partners: N/A.

27
SERBIA: SOCIÉTÉ GÉNÉRALE
Key Dates:
Signed: June 25, 2012
Loan 94.5 2012
In the context of the Joint IFI Action Plan for Central and Eastern Europe (CEE), Société Générale (SocGen), which is
the French bank with the largest exposure in the CEE region, has approached IFC to provide an investment package to
eight subsidiaries, including Serbia, for an aggregate investment amount of up to €270 million (equivalent US$365
million). IFC provided Société Générale Srbija with a €70 million (equivalent US$94.5 million) loan to increase access to
finance for Serbian agribusinesses, supporting economic growth, employment, and exports. In 2010, IFC also approved
a €40 million agribusiness loan to Société Générale in Serbia.
The Project Development Objective. The loan is part of IFC’s strategy to strengthen the region’s banking sector and
support the country’s economic recovery by boosting lending to the agribusiness sector. In Serbia, about 45 percent of
the population lives in rural areas and about one-third rely on agriculture for their livelihood. Agriculture is a key part of
Serbia’s economy, accounting for about 20 percent of GDP. In 2011, Serbia’s total agricultural exports increased by 20
percent year-on-year, reaching US$2.8 billion (€2.2 billion).
 Strengthening financial institutions Serbia
 Supporting agribusiness projects in Serbia in partnership with SocGen subisidiaries
 Contribution to economic growth and poverty reduction
 Enhancing the capacity of SocGen subsidiaries in Serbia to provide funding to agribusiness whose access to
finance has been curtailed by the global financial crisis; and
 Providing financing under the Joint IFI Action Plan.
Key Partners: N/A.

28
SERBIA: PMC
Key Dates:
Signed: March 30, 2012
Loan 26.88 2012
IFC provided a €20 million loan to PMC Automotive Serbia, a new metal-stamping factory near Kragujevac, to
strengthen Serbia’s car industry and boost the overall economy. PMC Automotive Serbia is a joint venture between
CLN Group and PROMA Group, two Italian automotive suppliers. The PMC factory will supply parts to FIAT’s
plant in Kragujevac. The FIAT plant will manufacture the new FIAT 500L, a subcompact car with improved fuel
efficiency. The current production capacity of the FIAT plant, 20,000 cars per year, is expected to grow to 140,000
cars per year in 2013, and possibly more than double that number by 2015.
The Project Development Objective. The PMC factory, located in a supplier park less than a kilometer from
FIAT’s plant, is expected to generate 370 jobs. The total cost of the project is estimated at €37 million. The project
will strengthen Serbia’s car industry and generate new exports.
 Sustainable employment creation: The project is expected to create at least 367 skilled jobs in Sumadija
District, a frontier region of Serbia.
 Support FDI in Serbia: Channeling foreign direct investment is a priority for Serbia. The project will
contribute to balancing Serbia’s large current account deficit.
 Support export oriented industry: The project will sell its products to FIAT assembly plant in Kragujevac,
which will export 90 percent of the production.
 Technology transfer: CLN and PROMA are FIAT trusted suppliers and have state-of-the-art technologies
and efficient processes. Local staff will be trained to new, highly competitive standards.
 Crisis response and counter-cyclical role: Current market conditions in Europe magnify IFC’s
countercyclical role, as most of the European banks, especially the Italian banks that are active in Eastern
Europe, have been limiting their exposure to emerging markets due to funding and capital constraints. By
providing long-term financing that matches the cash flow of the project, IFC is sending a signal to the
market that it is willing to finance sound projects and companies.
 Risk mitigation: CLN and PROMA are still in the early stages of their expansion to the emerging markets
and the project is their first investment in Serbia. Partnering with IFC especially in frontier regions provides
comfort to CLN and PROMA in terms of country knowledge and contacts in the public and private sectors.
Key Partners: N/A.

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