Standard & Poor’s (S&P) has upgraded Serbia to its lowest investment grade credit rating, marking the country’s official exit from non-investment status. This upgrade is expected to facilitate greater investment inflows and reduce borrowing costs, as announced late Friday.
To achieve a higher investment rating, Serbia requires favorable assessments from two additional agencies: Fitch, which could raise Serbia by one grade, and Moody’s, which would need to boost it by two grades.
S&P explained, “This improvement reflects Serbia’s enhanced economic resilience to shocks, which can be attributed to robust macroeconomic management that we expect to sustain in the coming years. Since the pre-pandemic period, Serbia’s real GDP has increased by 18%, foreign reserves have doubled, and the general government gross debt has decreased to a manageable 48.4% of GDP. We believe that resilient domestic demand, accumulated fiscal and external buffers, and prudent fiscal and monetary policies—especially those aligned with the International Monetary Fund (IMF)—should enable Serbia to navigate current weaknesses in the eurozone and withstand potential future shocks.”
The agency also revised its growth forecast for Serbia to 3.9% for this year, up from a previous estimate of 3.3%, driven by strong consumption and investments related to Expo 2027. This positive outlook is bolstered by strong economic growth, favorable foreign direct investment (FDI) prospects, manageable public debt, and a credible macroeconomic policy framework.
However, S&P’s ratings are constrained by several factors, including a relatively weak institutional framework, low GDP per capita, high net external liabilities, and significant euroization of the economy.
The rating could face a downgrade if economic slowdowns occur in key EU trading partners, if energy supply shocks arise, or if geopolitical tensions increase, undermining growth and straining fiscal and balance-of-payments positions.
According to the agency, net exports are likely to continue hindering growth, primarily due to rising imports associated with Serbia’s accelerated investment cycle.
Post-2024, Serbia is projected to achieve an average real GDP growth rate of 4%, driven by strong domestic demand, recovery in key trading partners, and sound macroeconomic policies. Nevertheless, vulnerabilities may still arise from external factors, such as potential long-term economic weaknesses in the EU, particularly in Germany and Italy, which account for about 65% of Serbian exports.
Another risk highlighted is Serbia’s considerable dependence on Russian gas, although this reliance is gradually declining.
While inflation is decreasing, recent data show rising costs for services, industrial goods, and processed foods, contributing to inflationary pressures. Core inflation is also on the rise, suggesting persistent price increases. The agency expects overall inflation to average 4.6% this year, with the National Bank of Serbia likely to continue cautiously reducing interest rates.
Reserves are expected to remain stable, supported by ongoing net inflows of foreign direct investment. However, risks persist, particularly due to global economic conditions that could impact FDI inflows and trade.
S&P also anticipates larger fiscal deficits due to substantial state investments related to Expo 2027 and other capital expenditures. Serbia is set to allocate approximately €17.8 billion—around 25% of GDP—for this project over the next few years, leading to a temporary suspension of fiscal rules.
These funds are expected to primarily support infrastructure development, including transport and energy projects, such as gas and heating networks.
As a result, the agency projects average fiscal deficits of 2.4% of GDP from 2025 to 2027. The government is also discussing a new draft fiscal strategy that will reflect increased infrastructure spending alongside defense expenditures, including the purchase of 12 fighter jets from France for €2.7 billion. Despite these challenges, conservative fiscal management and strong nominal GDP growth are expected to keep public debt under control.
The agency further notes that the IMF has approved an updated medium-term fiscal framework.
