Milan Kovačević, economist - Growth based on foreign investments and infrastructure investment is "slippery"

- Of the three agencies involved, we got only one chance to go up one step from the middle, which means we`ve stepped into that quality rating, which is commonly called investment. With the other two, we are still below half and we still don`t have an investment grade rating, in one case, we even need two steps to reach it, so we bragged about it a little too much and unfortunately I think there will still be expensive loans that we will be taking.

- Investments from abroad are still too subsidized. Now it can be seen that we made a big mistake by subsidizing and dragging in the industry that employs people with lower qualifications for a very long time. and which does not contribute at all to the general development of the country and the improvement of our knowledge about new technologies. Second, we have already handed over a lot of the total economy to foreigners, mainly through foreign investments, because there are very few local ones, and those foreign investments were supported from the budget, and not on the financial market, and thus we practically brought ourselves to the point that our economy is largely in foreign hands, which limits our economic policy to some extent, because it is affected by those foreign investors. And on the other hand, at the same time, indebtedness is growing, this year we will have a couple of billions of new debt, then of course it is a double negative that you are selling the property or that strangers become the owners of your property in another way, and you take on debt, with high interest. It is inappropriate to compare such debt with other countries and in what percentage it participates in GDP, because in our conditions, even a lower percentage than in other countries is quite dangerous, considering that you have some countries that have more than one hundred percent of the public debt in GDP, but annual interest less than us.

- There is another risk, it depends on whether we will have a real economic growth of 4%, or vice versa, inflation will remain higher so the nominal will be higher so then we will make a rebalance and get the wrong picture that our economy is in a good condition. And it`s certainly very bad if we don`t bring inflation down to a lower level. Although it has returned to within the target range of 3 ± 1.5%,

we would have to lower inflation below 3%, like other countries.

- Our growth is quite slippery. On one hand, it is supported by foreign investments, and on the other, by investing heavily in infrastructure from the budget. And this second part is rather insufficiently planned. For example, we are building some highways that will turn out not to have been necessary, that there aren`t quite so many vehicles on them, and at the same time we ignore investments in the network of other roads. And secondly, we are obviously working on this public infrastructure inefficiently, our buildings are collapsing. Instead of rewriting more or less similar budgets every year for the following one, in the way that we just adjust them for inflation, we would have to review the state budget a little more seriously, to see how to spend less from the budget for building infrastructure. Because we inflate GDP in one year, i.e. make it bigger because we were building something, it does not mean that we will build next year as well. Therefore, we have an economic growth that is not stable, rather, it depends on what we are going to build in that year. Likewise, it is necessary to create a good strategy for the reorganization of the tax policy, in order to contribute to a more stable economic growth. We have hundreds of different taxes and a large part of them should be abolished, we should simplify the tax system urgently if we think that we are evolving. And by the way, even 4% growth is not enough for us, because even now we are at the bottom in Europe, and even if we were to enter the EU, we would be at the back.

- What slows them down the most is that we practically ruined the domestic industry and other areas of the economy, and at the same time we lost the knowledge of how to rehabilitate it. We have no experienced entrepreneurs, nor a developed domestic financial market that someone who is capable can get a loan, and subsidies are generally reserved for foreigners. So the conditions for the development of entrepreneurship are not good, which is a great pity, because it is the engine of development and then we can only talk how, for example, will we advance in the IT sector and keep pace with the development of artificial intelligence, but we won`t be able to do that at all if it is not connected to the rest of the economy. Secondly, a big problem for the domestic economy is the staff who manage the businesses, and which are appointed according to the suitability of the authorities,

and then they can`t improve the knowledge and skills of employees either, for they know less than them. Unfortunately, all of this will take quite a long time, for two reasons - our education is bad,

and secondly, we don`t have a financial market, but bank loans, and the banks are in agreement and have very unfavorable conditions both for the economy and the population.