national bank of serbia speech at the presentation of the annual financial stability report for 2018 dr jorgovanka tabakovic, governor belgrade, 31 july 2019 ladies and gentlemen, esteemed members of the press, dear colleagues, welcome to the presentation of the annual financial stability report for 2018. before you is a report for the year in which serbia achieved the highest growth rate in the last ten years, maintained low and stable inflation and additionally strengthened the domestic financial system. the year in which long - term investment in our country increased and the share of public debt in gdp contracted further. i have to say that such results were achieved in the face of challenges from the international environment we have all been witnesses to – such as global protectionism, geopolitical tensions, or uncertainties surrounding the uk ’ s exit from the european union. the financial stability report starts with the ever important conditions in the international environment, because they have a significant bearing on the conditions at home too. at the global level, 2018 was marked by an economic slowdown experienced in the second half of the year by advanced and, consequently, emerging economies. this put an upward pressure on the risk premia of countries in the region and prompted revisions to the growth outlook. trade tensions between major world economies also fuelled uncertainty in international commodity and financial markets. in such an environment, the pace of normalisation of monetary policies of leading central banks, the european central bank and federal reserve system, was uncertain. what is the best response of policy makers to growing uncertainties in the external environment? the best, and in fact the only response, is to strengthen the domestic economy. in coordination with other economic policy makers, the national bank of serbia has worked continuously towards further narrowing of internal and external imbalances. more stable conditions of doing business reflected in price and financial stability, sound public finance and better prospects were also “ sealed “ by the standard & poor ’ s upgrade of serbia ’ s outlook from “ stable ” to “ positive ”. as the reasons for its decision, the rating agency cited the country ’ s strong economic growth, as well as the results of the national bank of serbia in maintaining price and financial stability. we have kept inflation under control for six consecutive years. over the past six years inflation in serbia has been kept firmly under control. inflation averaged around 2 % in 2018, while medium - term inflation expectations of the financial and corporate sectors remained anchored. against the background of low inflationary pressures, but also risks from

savings accounts are foreign - owned and, to tell the truth, their savings can be taken out of the country as there is no authority that would force those banks to grant credits in serbia against such savings. on the other hand, though pension funds are long - term investments similar to those that banks engage in – it is the state which takes care of the voluntary pension funds and life insurance funds today and will continue to do so in future. the question arises as to why this is so? does the state of serbia have a proven track record over the last fifty years of expertise in making profitable investments or do we have some special skills which are superior to those of the top - ranking investment funds worldwide? - we have sold our milk farms, yet agriculture, we say, matters to us, cement producers are of no interest, yet we want to increase housing construction and building in general. citizens of serbia have been deprived of the opportunity to smoke home - grown tobacco, yet we would not let go of the eps, or part of it, of telekom srbija, one of the three operators that seems to be the state - interest, not to speak of the nis – a veritable national treasure! why? what is the rationale behind all of this or have i missed something over the last 2 to three years or, as it may be, have others changed? generally speaking, in terms of big public enterprises, the government has four functions : - it is a majority owner, - it manages those enterprises, - it supervises their operations and, most importantly - it adopts the overall legislative framework that is relevant for their operations! the latter two functions, i. e. supervision and adoption of the legislative framework, remain within the remit of the state independently of the former two functions. to illustrate, we have retained those same functions in relation to banks as well. if the sole aim of the government is to maximize budget revenue, the whole matter seems to be rather simple – we need to sell the minority share today and commit to privatize the remaining portion in several years time. but what is more important, the state needs to surrender management of those enterprises to their majority owners! this at the same time means that somebody other than the state, i. e. the majority owner, will be making all the preparations for putting such enterprises on the market, implementing their reorganization, undertaking measures to increase their price. it is more and more often that we hear