Privatization is not done merely for the sake of debt repayment but for increasing efficiency

It has been 100 days since the Government has had the economy and business in sharp focus. What do the chief economists of banks and bankers say about this period?

– Although the fact that the form of cooperation between the main coalition partners contributes to the impression of slower decision-making to some extent, a positive effect that should certainly be mentioned is the strong focus on the issue of sustainability of public finances and raising awareness of the importance of fiscal adjustment and the effort to stabilize the credit rating. The budget framework for 2016, as well as a good starting position from 2015, supports this. Efforts aimed at improving the investment climate, as well as reviving the privatization process, should also be welcomed. Furthermore, the focus on the stability and predictability of the institutional framework is also particularly important – says Alen Kovač, director of the Economic Research Department at Erste Bank. He emphasizes that in the context of the current situation, structural reforms and the capacity to implement them remain somewhat questionable.

– This primarily relates to the efficiency of the broader public sector, especially the quality of management of public enterprises. In the context of efficiency, the direction of further digitalization and the announcement of the introduction and monitoring of performance criteria in public services is encouraging. Time will tell whether there will be enough momentum and capacity to implement these programs. When we talk about public enterprises, the first 100 days did not bring significant progress, and this is certainly an important agenda item for the next 100 days, concludes Kovač.

Hrvoje Stojić, chief economist of Hypo Alpe Adria Bank, evaluates the first 100 days of the Government positively, but says it has not specified measures on the supply side of the economy, although the effects of these can only be measured in the medium term.

– Despite the announced comprehensive reform of the tax system (which will ultimately happen), here I primarily mean the absence of guidelines for internal devaluation that is necessary for the recovery of the competitiveness of private enterprises. A sense of urgency could be demonstrated through the adjustment of the wage mass in the public sector alongside the reduction of parafiscal levies in the medium term. Strengthening the supply side of the economy includes a comprehensive tax reform, further flexibilization of the labor market, products, and services, restructuring of state-owned companies, about which there are currently few details, and they should be presented at least before the next business budgeting cycle – says Stojić.

He warns that as part of managing expectations, there has been a lack of broad public discussion on reforms in the pension and health systems, as well as other generous social benefits – regarding which it will be difficult to gain momentum as the mandate expires.

– For the sustainability of the pension system, it is essential to raise the contribution rate in the second pillar to 10 percent. It has been missed to explain that privatization is not done merely for the sake of debt repayment but for increasing efficiency in the economy through better corporate governance, opening new markets, changing the business model of inefficient companies, and putting frozen assets into function. By privatizing natural monopolies, space is opened for the private sector to compete for the benefit of reducing the prices of products, i.e., services paid by end consumers – emphasizes Stojić. For the next 100 days, he expects, in addition to the specification of tax changes, the implementation of a larger part of the structural reforms announced so far.

– The reform of the labor market should particularly be deepened through the reduction of its duality, the abolition of the ban on hiring after the implementation of the redundancy program, and the elimination of the possibility for the social benefits system to produce benefits higher than the minimum wage. Programmatically, the employment and participation rate (among the lowest in Europe) could be targeted, as our unemployment rate will anyway fall due to the further decline in the total labor force. I also expect more restructuring of public enterprises and the opening of new privatization stories – concludes Stojić.