2 SWISS COOPERATION
SERBIA <strong>2010</strong>-<strong>2013</strong> means of assistance that are required to stabilize the economy. These will most probably help maintain the relative stability of the domestic currency. The public sector must revert to a rigorous austerity policy, whi<strong>ch</strong> includes lowering public spending, as well as reducing transfers to local governments. Efforts to increase revenue levels are ongoing, but require measures in the politically sensitive issue of taxation. The private sector has been faced with a drop in demand and in foreign direct investment, leading to declines in production, imports and exports, as well as an increased unemployment. Despite significant withdrawals of domestic savings and foreign credit funds, the banking system has remained relatively stable, owing to the National Bank of <strong>Serbia</strong>’s discipline. Compared with neighbouring countries, <strong>Serbia</strong>n banks have appropriate capital adequacy ratios and are not facing solvency problems. The government has set up a package of measures aimed at providing incentives to boost economic activity. Evidently, mu<strong>ch</strong> will depend on whether the current global crisis abates soon, or the recession drags on. 1.3 Social developments After years of declining trends, poverty has recently increased again to 7.9%, affecting the elderly, young people and <strong>ch</strong>ildren in particular. In addition, as mu<strong>ch</strong> as 20% of the population live just above the poverty line, and are vulnerable to external shocks su<strong>ch</strong> as the current global crisis. Regional disparities are pronounced, with rural areas (in the south-west and south) having the highest poverty rates. <strong>Serbia</strong> shows an accelerated process of demographic ageing, with a rural exodus emptying entire villages. As in other countries of the region, the Roma population and the other 20 recognized “national minorities” are in a difficult situation, both economically and socially. Exclusion and discrimination persist, in particular with regard to housing and access to basic services su<strong>ch</strong> as health and education. The global crisis is likely to worsen the living conditions and prospects of marginalized groups. Overall, the civil society in <strong>Serbia</strong> is not very strong, and the well-established NGOs are mostly concentrated in Belgrade. Social dialogue and partnerships are advancing slowly, with difficulties, especially at the national level. Migration constitutes an important issue, as many refugees and internally displaced persons (IDPs) are still not really integrated in the society. The number of returnees from Western Europe is increasing. As a response to these social <strong>ch</strong>allenges, the government has decided to draw up and implement social inclusion policies, as well as a comprehensive migration management strategy. Both are essential to the EU integration process. 1.4 International aid <strong>Serbia</strong> currently receives around EUR 400 million in international aid annually, with IPA funding expected to increase over the next years. Covering only 4% of overall public expenditures, this aid is marginal, but its importance is increasing in the light of the current budgetary problems. In fact, the global crisis has further exposed the need to strengthen dialogue between the <strong>Serbia</strong>n government and its international development partners. <strong>Serbia</strong> has signed the Paris Declaration on Aid Effectiveness and developed a National Aid Effectiveness Agenda. In cooperation with other ministries, the Ministry of Finance – through its Sector for the Programming and Management of EU Funds and Development Assistance – has made a significant effort in the implementation of the National Agenda. Nevertheless, many donors continue to pursue diverse priorities and approa<strong>ch</strong>es, leading to a fragmentation of aid. The government intends to align donor activities more closely with national priorities by means of the recently updated Needs Assessment of the Republic of <strong>Serbia</strong> for International Assistance. The document is focused on priorities linked to EU accession. The main instrument, the IPA funds (50% of international aid), are routed first and foremost through the government, while the local levels do not have direct access to them. Another effort undertaken by the Ministry of Finance is to provide support to line ministries in the process of planning and prioritizing international aid, as capacity in this area is still weak. Donor harmonization includes periodic coordination meetings and information sharing between multilateral and bilateral agencies, as well as the co-financing of projects to an increasing degree. Donors and the government all agree that sector-related policy dialogue and sector-based approa<strong>ch</strong>es should increase. However, in order to progress along this track, national capacities need to be improved to allow the government to assume full leadership. Existing sector coordination groups are mainly donor-driven and do not yet work at a strategic level. The programming of IPA funds for the 2007-<strong>2013</strong> period provides an excellent opportunity to enhance the <strong>admin</strong>istrative capacities of state institutions and to improve aid effectiveness in <strong>Serbia</strong>. 3