Serbia 2024-2033: Debt sustainability and growth performance testing

Abstract

This paper examines Serbia's external debt sustainability in order to assess the applicability of the selected growth model. To this end, an empirical model was created for the generation of long-term projections and assessment of debt sustainability. The model distinguishes itself from existing models created by the International Monetary Fund and the World Bank as a practical tool. The macroeconomic balance table approach of the model, in contrast to these existing models, ensures that changes in one table reflect changes in others, thus ensuring both internal and external validity. It harmonizes individual macroeconomic aggregates and variables by combining them all at the same time. As a result, a detailed framework of interconnected long-term forecasts is established. In addition to this, the second part of the paper is dedicated to dynamic analysis of external debt by investigating which factors contribute to the creation of external debt and assessing their impact. In order to understand the extent of these contributions, a sensitivity analysis of the debt is performed. Utilizing this model of macro-projections, we can examine the debt path and evaluate how projected debt values respond to different macroeconomic shocks. This is particularly crucial given the growing global uncertainty, which includes both economic changes and security issues. Current conflicts in Ukraine and Gaza are likely to make investors more cautious about investing abroad. This presents significant challenges for small and open economies like Serbia in obtaining the necessary funding for its planned economic growth and development.