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Humanitarian Risk Analysis No. 6: Federal Republic of Yugoslavia

OCHA Belgrade
OCHA Belgrade issues a monthly "Humanitarian Risk Analysis", which provides an overall and impartial evaluation of the impact of the economic crisis, sanctions and recent bombing on the vulnerable sectors of the population in the Federal Republic of Yugoslavia (FRY).


This issue of the Humanitarian Risk Analysis (HRA) addresses the following subjects:

A further examination on the coping mechanisms of the FRY population: This section seeks to provide an overview on the scope and structure of the grey market in FRY since early 1990’s. It also assesses the size of the grey market and its role in the survival of vulnerable groups, such as the unemployed and pensioners. Finally, it attempts to consider the current status and trends of the grey market, on which no statistical data could so far been found.

A continuation of HRA5’s review of the health situation in FRY: The public health system in FRY is on the verge of bankruptcy, seriously threatening the health safety net of its population. This is particularly alarming, as the cold winter is likely to have serious impacts on health, particularly for the most vulnerable. The World Health Organization (WHO) contributes an article to this issue of HRA, examining immediate public health threats and concerns in the coming winter.

Lastly, as part of our ongoing effort to track trends that impact on the most vulnerable, a few macro-economic indicators are once again highlighted, including the updated table on OCHA’s shopping basket.

2. COPING MECHANISMS: AN ASSESSMENT ON THE GREY ECONOMY IN FRY The data used in this section are taken from the study,"Analysis of the Grey Economy in FRY with Assessment for 1997 and Recommendations for its Legalization," conducted by the Economic Institute in 1997, as published in an article entitled "The Grey Economy" in the Yugoslav Survey (pages 53-80, Vol. XXXIX, No. 4 1998), a publication founded by the FRY Government.

The previous HRAs have documented a consistent statistical trend of economic decline and a slide into deeper poverty for much of the FRY population. In this environment, people resort to a number of means by which they manage to get by. In many cases, the coping mechanism becomes the primary means of survival. These could include, for example, remittances from abroad, reliance on rural relatives, non-payment of communal bills, selling off any remaining family assets, renting of an family apartment, and, perhaps most significantly, participation in the grey economy.

The grey economy provides an essential means of survival for a large segment of the population. In fact, it would not be possible to accurately understand humanitarian vulnerability in FRY without obtaining a good idea of its scope and structure (e.g., how large it is, how it works, and how many people are involved). However, its activities are largely unquantifiable - perhaps naturally, as they are being conducted illegally without registration, and very little reliable data exists to paint its overall picture. One noteworthy attempt in this respect was the study conducted in 1997 by the Economic Institute of Belgrade. Though admittedly out-dated, this study, based on a survey covering a representative sample of 3,000 persons, gives a clear indication that the global structure of the labor market was characterized by a significant share of the informal sector. For the purpose of gaining a better general understanding of the grey economy as a coping mechanism, it provides a still useful statistical overview of its activities up to 1997.

2.1 An Overview of the Grey Market 1991-1997

(i) Forms of the Grey Economy

Despite the existence of many relevant regulations and restrictions in the FRY economy, the Government has largely tolerated the existence of the grey economy during the economic crisis, as a way to maintain the minimum living standards for the population. In general, grey market activities in FRY takes two forms. First, individuals operate in the grey economy. This involves, for example, illegal import and resale of goods, money lending, resale of foreign currency, unregistered leasing of property and real estate trading, and unregistered provision of services, including those performed by housemaids, baby-sitters, nurses, and tutors. Second, there are also signs of informal operations in the formal sector, performed by registered enterprises. These may include: non-payments of taxes, contributions, and customs duty; payments in cash, foreign currency or in barter transactions; illegal employment; hiding of incomes and profits; formation of parallel companies for use for informal or illegal activities, etc..

(ii) Size of the Grey Economy

The Economic Institute's 1997 study extrapolated the size of the grey economy based on the quantity of labor performed in the formal and grey sectors, and arrived at the following estimates for 1991-1997:

Table 1: Grey Economy Size 1991-1997

Monetary value in billion $
As % of registered GDP

Prior to 1990, the grey economy in FRY was limited mostly to the crafts sector. However, as the country disintegrated and the economy sharply contracted, further weakened by the impact of economic sanctions, the grey market expanded, reaching its peak in the hyper-inflation year of 1993 at more than 50% of the registered GDP. In 1997, the grey economy was estimated to account for 25.7% of the total economy activity (i.e., 34.5% of the registered GDP). This means that in 1997, to every 100 dinars of the registered GDP, there were 34.5 dinars of hidden GDP. Unfortunately, no comparable study has been conducted since 1997, and reliable figures on the grey economy in the recent years are not available. However, it is generally agreed that, after a decline for period 1994-1997, the grey market activities are now again on the increase, due to harsh economic conditions. Though not verified, it is worthwhile noting that some independent economists estimate that the grey market presently may add up to close to 50% of the GDP.

(iii) Participation in the Grey Market

The 1997 study demonstrated the existence of a considerable hidden labor market. The total number of participants in 1997 was estimated at 2.3 million – interestingly, the number is equal to the official registered employment figures in the same year. Among them, the actual level of their participation in the grey market, in terms of the number of working hours spent, differed from one person to another. The study, therefore, concluded that, if reduced to the full-time equivalent, the participants in the grey market amounted to about 1.2 million persons in 1997.

Table 2: Grey Economy Participants in 1997

* OCHA arrived at these estimated figures by multiplying the total number of the grey market participants (2.3 million) by the representative percentage for each socio-economic status.

** For the sake of demonstrating the sheer size of the populations dependent, in varying degrees, on the grey market for their survival, 2.3 million (and not the full-time equivalent figure of 1.2 million) is used as a basis for this calculation.

In general, the grey economy participants included: (1) the employed who performed additional jobs apart from their regular work (including those on forced leave); (2) self-supporting persons (e.g., pensioners, persons living on income from abroad, rent, interests, etc.), seeking to increase their personal income; (3) unemployed persons and dependents (e.g., students, housewives and others without regular income), seeking to earn income; and (4) self-employed persons who engage in economic activities without having registered business of their own (working mostly at home, on the street or at other informal places). What made the hidden labor market more attractive for them was the fact that the average daily wage on the gray market was 46% higher than that on the regular market.

For many of the unemployed and pensioners, the grey market represents the major or only source of income for their subsistence. According to the study, two out of five unemployed persons (39% of the unemployed surveyed) engaged in the grey economy in 1997, earning 1,470 dinars per month on average - an amount 13% higher than the total average income earned in the grey market (1,298 dinars). It also indicated that nearly every fifth pensioner (17% of the pensioners surveyed) was also participating in 1997, earning an average of 914 dinars monthly - an almost equal amount to the average pension.

The most striking fact was that the vast majority (75%) of the grey market participants in 1997 were those already employed in the formal sector - most in the state owned companies (52%), followed by the self-employed (13%) and farmers (5%). Those employed in the state sector were particularly motivated by the prospect of earning extra income to supplement their meager regular earnings. Many of them, though employed officially, were on a force leave and were willing to work unregistered even on less favorable terms. The study showed that almost every third officially employed person was engaged in the grey economy in 1997. Another interesting finding was that many of these employed persons - as many as one third - performed, often or from time to time, their extra "grey market" work without leaving their regular job, i.e., during their regular working hours.

2.2 A Thought on the Present State of the Grey Market

As mentioned before, there is no comprehensive data on the current state of the grey economy in FRY. However, as the FRY economy continues its rapid decline and faces increasing international isolation, it can safely be assumed that segments of the population relying on the grey economy for their survival have increased since 1997. At present, there are an estimated 1 million unemployed, an increase from 814,000 in 1997 According to the data of the Federal Statistics Office.. Furthermore, there are up to 800,000 persons who, though registered as employed, are placed on a forced leave with no salary. With the 1997 survey as reference, it is safe to assume that these represent major categories of people that are likely to engage in the grey market. Of course, it is not possible for the grey economy to absorb the majority of these unemployed or redundant workers, as its growth is limited by the level of economic activities and the purchasing power of the general population, and, therefore, its scope as a coping mechanism has its limits.

The 1997 survey showed that the most prevalent motive (75%) for engagements in the grey market was the desire to achieve a more certain prospect of survival and of satisfying basic needs. Such motivation was generated by the deepening fears for economic survival and the sense of endangerment by the falling standard of living. Indeed, more than a half (50.7%) of the 1997 survey participants stated that their monthly income was insufficient to cover their vital needs, while three quarters (74.4%) expressed fears for their survival and for the standard and quality of living. It is interesting to re-examine these results in light of the more recent findings on the comparable questions, published in the previous HRAs.

Table 3: Motivating Factors for Grey Economy Participation

% of the respondents who felt:
Income is insufficient to meet basic needs
Anxiety about the survival/ declining living standards

HRA 4 showed that, according to a random-sample survey in September 1999, 74.8% of the sample families responded that their incomes are not sufficient to cover their basic needs. Similarly, HRA5 revealed that, as per the recent opinion poll, 92% of the respondents are most worried about the declining living standards. Of course, the accuracy of such a comparison is somewhat compromised by the fact that the 1997 and 1999 surveys were not of an identical nature, with differently formulated questions. Certainly, further surveys and studies are required in order to gather reliable data to obtain a conclusive picture of the grey market in FRY at present. Still, the comparison between the 1997 and 1999 findings indicates that the factors which motivate increased grey market activities among the FRY population are prevalent and on the increase.

3. WINTER HUMANITARIAN NEEDS: HEALTH This section has been prepared by WHO as a contribution to the HRA. More detailed information on this subject can be obtained from WHO Belgrade.

As we enter the winter, the humanitarian community in FRY is focusing on meeting winter needs of the vulnerable groups, providing "winterization relief" (food and non-food aid, as well as winterized shelter for the displaced) on one hand, and advocating for energy assistance on the other. The cold winter is likely to have serious impacts on the health of the FRY population. This is particularly so for the most vulnerable (i.e., refugees, IDPs, the elderly, and other social cases that, under normal circumstances, are dependent on the State for their basic health needs), as well as for the growing ranks of economically vulnerable who can no longer afford basic health and social services. HRA5 indicated that health services in FRY were seriously threatened due to the economic crisis, endangering the health of the populations. This issue of HRA examines the three immediate public health concerns for the coming winter, raised by the WHO, particularly in light of the predictions that the FRY will experience a widespread heating and energy crisis.

3.1 Acute respiratory infections

The increase in prices of basic food items and the decline in the purchasing power of the majority of the population have raised concerns that insufficient quantities of food were preserved for the winter. There are fears that this lack of crucial foodstuffs will adversely affect the regular diet and compromise the immune status of vulnerable individuals. This in turn would increase the susceptibility of such individuals to acute respiratory infection (ARIs), especially if they are placed in crowded, cold conditions, as is the case in collective centers, schools, and perhaps even some of the soup kitchens. The priority at this point is to take a preventive measure against ARIs, through an influenza vaccination campaign targeted to the elderly, chronically ill, residents of social institutions, and refugees and IDPs living in collective centers. WHO is working with the Institute for Public Health in Serbia and Montenegro and local health authorities.

3.2 Food safety and quality of drinking water

Concerns about food safety have been growing in FRY for a number of years, particularly in relation to contamination by E-coli and/or Enterobacter. Testing in the past has been rigorous and consistently identified problems of food safety (e.g., from 1986-1997, roughly 21% of all samples tested for microbiological safety was considered unacceptable). In the current situation, however, the State is unable to maintain adequate food quality assurance programs. The consequences of this problem will be compounded this winter by the additional negative impacts of power shortages on food storage (i.e., refrigeration) and preparation.

Guaranteeing safe drinking water is another public health priority, particularly in light of the findings of the recent assessment by the UNEP/UNHCS Balkans Task Force which pointed out several "hot spots" of potential ground water contamination due to chemical spills from the NATO air strikes. One particular area of concern is the threat of contamination of the primary source of drinking water in Novi Sad located precariously close to a damaged oil refinery. The site in question is located 2 kilometers from wells that supply 60% of the city with drinking water. No protection barriers have been built to shield possible chemical contamination of the ground water table located only 1-2 meters below the refinery. Although plans were made to build such a barrier, they have to-date not been realized. As such, the need to strengthen water quality assurance is a continued priority for this coming winter and beyond.

3.2 A health early warning system

The national health information system is slow and cumbersome and is, therefore, not very sensitive to rapid changes in the health status of the population. The reporting process is long, detailed and not very flexible. Information related to non-communicable diseases is collected on a quarterly basis and is published in an annual statistical yearbook. 67 communicable diseases are reported on a weekly basis to the public health institutes. Diseases of epidemic potential are monitored and responded to by the Republic Institute for Public Health. Information about changes in health status and health care utilization is analyzed on an annual basis and generally released with a one-year delay. Currently, the latest figures available are from 1997.

As the humanitarian situation over the coming winter worsens, there is an urgent need to develop an early warning system to inform appropriate policy decisions to protect the most vulnerable. Collaborative efforts of WHO and the local Institutes for Public Heath to refine existing mechanisms to allow for both general monitoring and rapid response. Furthermore, there are plans to carry out a country-wide baseline survey at the beginning of the new year to facilitate this process.


In each issue of HRAs, OCHA reports on the main economic indicators from the previous month, including average salaries, pensions, inflation, the basic food availability and its prices (including the value of the statistical shopping basket), etc..

In October 1999, the average salary in FRY was 1,512 dinars (86 DEM/48 USD), representing an average increase of 10 % compared to the previous month.

Average Registered Salary in October:

Serbia: 1,393 dinars (80DEM/44USD)

Montenegro: 2,134 dinars (122 DEM/68USD)

Officially, this increase in the average salary should translate into an equal increase in October pensions, i.e., a ten-percent rise to 1,316 dinars (75DEM/42USD). They have not been paid out yet, and, moreover, it is not certain that the pension funds have enough resources to accommodate such an increase. According to the Independent Pensioners’ Association, out of 1.3 million pensioners, 420,000 pensioners receive a pension of less than 50% of the average salary, of whom 350,000 received less than 500 dinars only.

Overall increase in retail prices in October, according to the official statistics, was 9.1% - a lower figure than the September inflation rate. However, the price increased more sharply in certain basic goods that more directly impact the lives of the people, which remain quite unaffordable for the vulnerable. The value of the consumer basket of the Federal Statistics Office (containing 65 food and non food items) increased by 15% in October, to 3,671 dinars (210 DEM/116USD) – the figure 2.4 times higher than the average salary. Focusing on the most basic needs, the prices of agricultural products increased by over 20% in October.

Over a few days in mid-October, the dinar/DEM exchange rate jumped by 13.3%, from 15 dinars to 17 dinars for 1 DEM, which automatically translated into higher prices. This was caused by the sudden release of an increased amount of dinars on the market in mid-October, a measure taken to cover the state budgetary needs. The exchange rate has since stabilized, maintaining the rate of 17 dinars for 1DEM at the end of November, which has helped create a relative stability in the grey market prices, as shown on the table next page (e.g., 10.7% increase in grey market prices in November).

In an attempt to curtail hyperinflation, the Government had adopted a short-term measure of direct price control since mid-October. Despite this, prices further increased in November, as indicated on the table next page (e.g., 20.9% increase in state prices of OCHA’s shopping basket in November), which is likely to be reflected in the official November inflation figure. Availability of state-controlled basic items, prices for which are kept artificially low, continues to be very limited in November. Perhaps the most striking is milk – a basic item normally purchased and consumed on a daily basis. Fresh milk has been unavailable commercially for months, and as of last week of November, even higher-priced long-life milk had largely disappeared from shops.


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