Fitch Downgrades Serbia’s Rating to ‘Negative’

Agency blamed deteriorating finances and recent measures strengthening parliament’s control over the central bank.The US agency Fitch Ratings has downgraded Serbia’s outlook from stable to negative, citing the weakening fiscal position and low economic growth.

“The negative outlook reflects the deterioration in the country’s fiscal and external financing position and weak economic growth outlook,” a statement said.“Instead of focusing on the correction of the growing fiscal deficit and public debt, the new government amended the law on the central bank in a way that jeopardized investors’ trust, which can cause complications concerning the agreement on the new loan from the International Monetary Fund (IMF),” the release states.

At the same time, the agency reducted the long-term sovereign credit rating in both foreign and local currency to BB- level.

On August 7, ratings agency Standard and Poor’s lowered Serbia’s credit rating to BB-, with a negative forecast, noting that one of the main reasons was the recent adoption of regulations strengthening parliament’s control over the central bank.

Belgrade economist Miroslav Zdravkovic says that after the newly announced crisis measures of the government, Fitch may improve the country’s rating.

He also said that the downgraded rating was only to be expected since Serbia had run a constant deficit over the past 19 months.

Belgrade University Professor Ljubodrag Savic agrees that Serbia’s negative rating was not a surprise, having in mind the poor economic policies of the last four years.

“Serbia is in a serious economic crisis as the latest data of the National Bank show. Inflation increased, GDP fell, while the percentage of unemployed is among highest in Europe,” Savic said.

But Savic said the newly appointed government had not had time to deal with the consequences of the economic crisis.

“Sometimes ratings agencies act for political purposes, in this case to pressure the government to sign a deal with the International Monetary Fund,” he claimed.

Serbia’s new government, sworn in on July 28, plans to change the tax policy and impose austerity measures.

It also wishes to renew an agreement with the IMF after negotiations on an extra cash injection failed in February.