Serbia has recently been actively pursuing the achievement of what is known as an investment grade, with Standard & Poor’s (S&P) being the first agency to suggest that this could be attained in the next year. In its latest report, S&P revised Serbia’s outlook from positive to stable within the BB rating, but noted that certain conditions needed to align for an upgrade.
“We may consider upgrading the rating over the next 12 months if Serbia’s external position improves beyond our expectations, driven by stronger exports or net foreign direct investment (FDI) inflows. Additionally, a stronger fiscal performance leading to a reduction in net government debt could also contribute to an improvement,” stated S&P.
The agency justified its rating with the expected acceleration of economic growth in the current and coming years, sustained growth resilient to international challenges, foreign reserves accumulated in prior periods, and widespread foreign direct investments that could help Serbia absorb risks from the external environment.
Đorđe Dimitrijević, Director of the Open Market Operations Department at the National Bank of Serbia (NBS), explained that a country’s credit rating reflects its ability to meet financial obligations, which influences investor decisions. A higher rating indicates lower investment risk, leading to increased investment inflows, lower borrowing costs, and positive effects on economic growth and living standards.
Despite ambitious public investment goals, S&P believes there’s scope for a smaller deficit compared to the government’s target of 2.2% of GDP in 2024. Fiscal projections for 2024-2027 are based on assumptions that nominal GDP growth will support revenues, allowing increased spending on wages, pensions, and infrastructure.
S&P’s report highlights Serbia’s strong growth, prospects for FDI inflows, moderate public debt, and credible macroeconomic policy but notes weaknesses in institutional framework, GDP per capita, external liabilities, and economic euroization.
While external demand reductions from key EU trading partners could hinder Serbia’s growth, the country’s heavy reliance on Russian gas via the Balkan Stream pipeline poses a risk, though efforts to diversify gas imports, such as the Bulgaria-Serbia gas interconnector, could mitigate this.
Serbia’s reluctance to align with EU sanctions against Russia poses another obstacle to EU accession. Progress toward membership has been slow, with only two out of 35 chapters temporarily closed, indicating significant work ahead.
Additionally, normalization of relations with Kosovo remains a challenge, with the formal signing of the Ohrid Agreement unlikely amid ongoing tensions.
