Since 2001, relations between Serbia and the EU were based on the EU-FRY Consultative Task Force until it was replaced by the Enhanced Permanent Dialogue (EPD).
The EPD encourages and monitors reforms on the basis of the European partnerships adopted by the EU Council in June 2004 and updated in January 2006. The European Council of Feira in June 2000 declared Western Balkan countries as potential candidate countries for EU accession. Since 2005, economic dialogues are held with the Commission twice a year. Technical negotiations on a Stabilisation and Association Agreement were completed in September 2007.
Transition from a socialist to a market-based economy essentially began in Serbia in 2001. Following a sharp drop in output, related to transition and the Balkan wars of the 1990s, Serbian gross domestic product (GDP) had recovered by 2005 to an estimated 60% of its 1989 level. GDP per capita is estimated at about €2,803 for 2005, which classifies Serbia as a middle-income transition economy.
Overall, first-stage transition reforms are well advanced. Privatisation of the banking sector has been a success. Restructuring of socially owned enterprises has advanced, but fallen behind a rather ambitious schedule. Several large enterprises remain state-controlled and, although restructuring has advanced somewhat, progress in privatising these is very slow. As a result, the share of private-sector activity remains at a relatively low 55-60%.
According to official numbers, unemployment remains at above 20%. When corrected for hidden employment, the unemployment rate is estimated at about 14% and employment is increasingly being generated by entrepreneurial activities. Between 2001 and 2006, GDP has been growing at an average annual rate of 5.3%. Average annual inflation has slowed from above 90% in 2001 to below 13% in 2006. Exports have been growing robustly, albeit from a low starting point, but accounted for only about 50% of imports. As a consequence, trade and current account deficits have remained at above 20% and 10% of GDP respectively. However, strong inflows in the form of worker remittances, foreign direct investment and foreign loans have resulted in a balance of payments surplus and, consequently, strongly rising foreign exchange reserves at the National Bank of Serbia, amounting to about ten months’ worth of imports of goods and services at the end of 2006.
As the first stage of transition reforms has been broadly achieved in Serbia, in particular price liberalisation and macroeconomic stability, policy priorities must now rest on improving the functioning of market mechanisms as well as in consequently pursuing structural reforms to further raise the share of private-sector activity, while preserving achieved macroeconomic stability through a credible and prudent mix of fiscal, monetary and income policies.
The EU is Serbia’s main trading partner – 63% of its exports are shipped to the EU and 53% of its imports stem from EU countries, in particular Germany and Italy. In addition, 27% of Serbian exports go to the central and eastern European countries, in particular Bosnia and Herzegovina and Montenegro, while Serbia receives 18% of its imports from Russia and a growing part from China, which accounts for 6.6% of its total imports.
Serbia mainly exports intermediate and non-durable consumer goods, primarily food products and beverages, together accounting for 80% of total exports. Capital goods account for about 10% of total exports. On the import side, intermediate and capital goods account for a combined 52% of imports. Energy and non-durable consumer goods account for 25% and 15% of total imports respectively.
As a potential EU candidate country, Serbia is taking part in the instruments of the pre-accession strategy, such as a Stabilisation and Association Agreement (yet to be signed), the European Partnership, which defines specific priorities for which progress is to be made in view of further EU integration, an annual bilateral economic dialogue, as well as an economic and fiscal programme, which is annually submitted by the national authorities to the European Commission. The Commission's annual progress report, usually published in the autumn, assesses progress in meeting the Copenhagen accession criteria.