Analysis reveals significant issues with Serbia’s budget reserve use

According to the Fiscal Council’s latest analysis, “Current Budget Reserve and Rebalancing in Serbia: Current Challenges and Needed Improvements,” the Serbian government diverted approximately 2.6 billion euros from the budget reserve between 2018 and 2023, bypassing standard planning procedures and budget inclusion.

The government has extensively used the budget reserve, approaching the legal limit of four percent of budget revenues. The analysis notes that in 2020 and 2022, this limit was clearly exceeded. The actual reserve amount is likely higher, as comprehensive data for 2023 will not be available until mid-2024, and data for 2019 remains unpublished.

The Fiscal Council emphasizes that the state budget should transparently reflect public revenue and expenditure, with adequate citizen representation through the assembly and independent institutions. While minor deviations in budget projections are permissible, the reserve should not be used for ad-hoc economic policies, which should undergo regular planning and parliamentary procedures.

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The analysis highlights several issues:

1. Ad-hoc spending: The reserve has been used for financially significant policies and social measures without standard planning. For example, about 400 million euros were spent from 2018 to 2023 on social protection measures announced by high-level officials without proper budgeting or parliamentary approval.
2. Inefficiencies and inequities: There are discrepancies in fund distribution, with some municipalities receiving disproportionately high amounts. For instance, Čajetina received 20 times more funds per capita than Lajkovac. Similarly, Belgrade received four times more per inhabitant than Niš.
3. Confidential expenditures: The reserve funds are often used for confidential state expenditures, with only a third allocated to the security sector. The remaining 65 percent is used by other sectors, including the Ministry of Youth and Sports.
4. Lack of transparency: The reserve is used to finance various policies without clear, transparent reporting. The Fiscal Council calls for better reporting practices and clearer legal definitions on the use of the reserve.
5. Rebalancing procedures: Budget rebalancing has been frequently adopted under urgent procedures, limiting parliamentary oversight. The Fiscal Council criticizes this practice, citing the need for a more transparent and regular parliamentary review process.

The Fiscal Council recommends reducing the permitted use of budget reserves to three percent of budget revenues and further to two percent in the medium term. It also advocates for clearer legal definitions on reserve use, improved transparency, and a halt to urgent rebalancing procedures.