Serbia will be affected by the global financial crisis indirectly, but the outlook is not all gloomy, says a World Bank (WB) official.

WB Country Manager Simon Gray, in a recent online commentary, blamed the indirect effects of the global slowdown on Serbia's high current account deficit, coupled with more costly external borrowing and more cautious foreign investors.

"Domestic demand is high, resulting in a current account deficit (CAD) of some 18 percent of gross domestic product (GDP),"said Gray, head of the WB office in Serbia. He noted that "this in the past has been funded largely by cross-border borrowing and inflows of foreign investment."

Yet "as credit gets tighter, external borrowing will become more expensive. Foreign investors are going to be extra discriminating and very risk averse," Gray said.

He said Serbia's exports, "especially for commodities, will find it tougher in depressed international markets."

Gray, however, said that because of Serbia's future in the EU and because of its friends to the East, the country is in "a great location for economic activity."

"If Serbia still grows at three to four percent, and that growth largely comes from investments in competitive activities (including infrastructure) and not from high levels of domestic consumption - then the economy could emerge from the global crisis stronger and tougher, with a reduced CAD to boot," he said.

Serbia reached a standby agreement two weeks ago with the International Monetary Fund (IMF) worth US$520 million as a precautionary measure against the world financial crisis

To win IMF support, Serbia must cut its budget deficit from this year's 2.7 percent of GDP to 1.5 percent of GDP in 2009.

(Xinhua News Agency November 27, 2008)