Serbia’s budget deficit of three percent of GDP is not expected to significantly increase public debt, but the halt in the trend of deficit reduction since 2020 is concerning, stated Branimir Jovanović, an expert for the Western Balkans at the Vienna Institute for International Economic Studies.
According to him, macroeconomic indicators in Serbia are positive, with an expected growth rate of around 3.5 percent and inflation at three percent. However, the interruption of the deficit reduction trend from previous years is not ideal.
Prime Minister Miloš Vučević announced that the new arrangement with the International Monetary Fund (IMF) will confirm the maintenance of the budget deficit at three percent, focusing on capital investments and fiscal responsibility.
Jovanović noted the decline in the deficit from 7.6 percent in 2020 to 2.1 percent last year. While it is not guaranteed that the deficit will reach three percent, the budget achieved a surplus in the first eight months of this year, raising questions about the efficiency of spending.
He pointed out that the increase in the deficit is partly due to the purchase of French fighter jets and the organization of the World Expo, which does not guarantee an improvement in citizens’ quality of life. He also warned of the risk of corruption due to the lack of transparency in these projects.
Another significant issue is the rising cost of servicing public debt, which has increased from approximately one billion euros in 2022 to 1.7 billion euros this year, a jump of 700 million euros in just two years. If careful attention is not paid to the deficit, these costs will continue to grow, especially as interest rates are unlikely to return to pre-war levels in Ukraine.
Jovanović concluded that while this may not lead to a state bankruptcy, it will result in citizens’ money being funneled to banks instead of being used for essential services like school or hospital renovations.
