Following months of negotiation, Serbia agreed to cede its remaining control over the municipalities in north Kosovo, striking a historic accord which normalises relations between Serbia and Kosovo but does not require Serbia to recognise Kosovo’s independence. According to the agreement, the municipalities in northern Kosovo – dominated by Serbs whereas the rest of the country is dominated by Albanians - will be absorbed by Kosovo but retain limited autonomy in areas like economic development, health and education. The Serbs in northern Kosovo are opposing the agreement and have already demanded a referendum on the deal to be called by the Serb government. The decision would depend on talks with Kosovo Serb leaders. In addition, both sides agreed not to block each other’s effort to seek EU membership. The agreement has already been ratified by government and parliament on both sides. Tensions between Serbia and Kosovo were lingering since Kosovo declared its independence in 2008.

Impact on country risk

The historical accord normalised relations between Serbia and Kosovo and paves the way for Serbia EU’s accession talks. The EU accession talks should start after the approval by the EU members, expected in June 2013. In its latest report on Serbia, the Commission has identified major areas of concerns, from corruption and organized crime to a lack of media freedom and discrimination against minorities. Hence, EU accession is likely to be a long process and will have positive impact on the long term as it is likely to strengthen the reform process and boost foreign investment in the ailing economy (GDP contracted by 2% in 2012 and is likely to grow by a modest 2% in 2013). Nevertheless, in the near future, ONDD is unlikely to revise its MLT political risk, which remains constrained by the high external debt and debt service burdens and high current account deficit.

Analyst: Pascaline della Faille, p.dellafaille@credendogroup.com