Serbia’s fiscal position became more expansionary during the first five months of 2026 as higher social and capital expenditure widened the consolidated budget deficit. The shortfall reached €907.3 million, compared with €491.3 million in the corresponding period of 2025.
The deficit increased by approximately 85%, driven by pensions, public-sector wages, social transfers, infrastructure and other capital investments. Fiscal policy is therefore supporting domestic demand at a time when household consumption and credit are already expanding strongly.
The historical comparison shows how sharply the fiscal balance has changed. Serbia recorded a deficit of €517.7 million in January-May 2022, €221.2 million in 2023 and only €16.4 million in 2024. The deficit then returned to €491.3 million in 2025 before approaching €1 billion this year.
The larger shortfall has not produced a higher debt ratio. Central-government debt declined to 43.7% of GDP in May 2026, from 44.4% at the end of 2025. The ratio has fallen steadily from 52.4% in 2022, through 48% in 2023 and 46.7% in 2024.
Nominal GDP growth, inflation, exchange-rate stability and debt management have allowed Serbia to increase expenditure while reducing debt relative to the size of the economy. The position gives the government meaningful headroom below the 60% Maastricht threshold.
Fiscal space, however, is not the same as unlimited borrowing capacity. The revised strategy projects a medium-term deficit near 3% of GDP, with substantial capital expenditure linked to the national development programme. Maintaining debt stability will require economic growth and revenue performance to keep pace with spending.
The composition of expenditure is decisive. Investment in railways, roads, energy, utilities, digital systems and Expo-related infrastructure can raise productive capacity and attract private capital. Current spending supports consumption but produces less direct capacity to service the debt incurred.
Large capital programmes also carry execution risks. Cost escalation, land acquisition, permitting delays, imported equipment and contractor claims can increase final expenditure beyond original budgets. Projects need disciplined procurement, technical supervision and lifecycle cost control rather than evaluation based only on construction progress.
Imported content affects the macroeconomic return. A project may support GDP through construction while simultaneously widening the merchandise and current-account deficits through machinery and materials imports. Local engineering, manufacturing and supply-chain participation determine how much of the fiscal stimulus remains within Serbia.
Serbia’s sovereign rating provides an important advantage. S&P awarded the country a BBB- investment-grade rating in October 2024. Investment-grade status can broaden the investor base, lower financing costs and support corporate issuers whose credit profiles are linked to the sovereign ceiling.
Fitch and Moody’s have maintained more cautious positions, reflecting domestic and external risks. Further upgrades are likely to depend on institutional reform, predictable energy policy, external-balance management and continued debt discipline rather than the debt ratio alone.
The unresolved position of NIS affects this credit assessment. Refinery disruption would weaken industrial production, increase energy imports, raise inflation and reduce tax revenue. A prolonged problem could widen the fiscal and current-account deficits simultaneously, increasing Serbia’s risk premium.
Monetary conditions also matter. The NBS reference rate remains at 5.75%, while international interest rates have not returned to the exceptionally low levels available earlier in the decade. New borrowing and refinancing therefore carry a higher nominal cost even when debt-to-GDP remains moderate.
The deficit is being recorded during a period of rapid credit expansion. Total domestic lending increased 17.1%, household credit 21.1% and corporate credit 12.1%. Fiscal and credit impulses are operating in the same direction, strengthening demand but increasing the need for monetary vigilance.
Inflation averaged 2.9% in January-May, but accelerated to 3.5% in May as petroleum prices rose. A sustained commodity shock could force the NBS to keep rates higher for longer, raising sovereign, municipal and corporate financing costs.
Foreign-exchange reserves of €29.9 billion and a stable dinar reduce the probability of a currency-driven debt shock. The euro exchange rate averaged RSD 117.3938 in the first half, while gold accounted for almost 23% of reserves. These buffers strengthen confidence in Serbia’s ability to meet external obligations.
The fiscal expansion should also be judged against growth. GDP increased 3.2% in the first quarter, and the NBS expects 3% for the year. Growth is respectable, but industrial production rose only 0.6%, suggesting that public spending and consumption are contributing more than the productive sectors.
A stronger fiscal multiplier requires domestic companies to participate in infrastructure and construction programmes, employees to acquire transferable skills and logistics improvements to reduce costs for exporters. Without those channels, the deficit supports near-term activity but leaves a smaller long-term revenue base.
Serbia can afford the current fiscal stance more comfortably than many comparable economies because debt remains at 43.7% of GDP and the country has investment-grade access to capital. The next stage of sovereign assessment will focus on whether the widening deficit is financing assets that strengthen productivity, exports and energy security.
