Serbia’s fiscal deficit is widening as the government finances infrastructure, defence procurement, public-sector incomes, energy security and preparations for Expo 2027. The increase remains manageable, but the composition of spending is becoming more important as the investment cycle approaches its peak.
The consolidated budget recorded a deficit of approximately RSD55.8bn, or €475mn, in the first half of 2026, compared with RSD21.3bn during the same period of 2025. Despite the annual increase, the result remained considerably better than the government’s original first-half plan.
The full-year budget permits a deficit of RSD337bn, approximately €2.9bn or 3 per cent of GDP. Capital expenditure is planned at around RSD602bn, equivalent to approximately €5.1bn. Expo-related preparations account for RSD47.5bn, while a further RSD164bn, approximately €1.4bn, has been reserved as a potential financial envelope related to NIS.
Serbia can finance this programme because public debt remains moderate, foreign-exchange reserves are high and access to international markets is open. The government demonstrated that access in April through its first multi-currency international bond transaction.
The issuance included a €1bn five-year bond carrying a 4.25 per cent coupon, a €900mn twelve-year green bond at 4.875 per cent, and a $1.25bn ten-year dollar bond at 5.5 per cent. The dollar exposure was converted into euros through a hedging transaction, producing an effective euro cost of approximately 4.66 per cent.
Investor orders exceeded €8bn, showing strong demand for Serbian sovereign debt. Part of the proceeds was used to repurchase bonds maturing in 2027, extending the debt profile and reducing near-term refinancing pressure.
Domestic government securities are also attracting greater foreign interest. Five-year dinar bonds have been placed at yields close to 5 per cent, supported by exchange-rate stability and positive real returns. Foreign participation remains far below the levels recorded before the pandemic, indicating that investors still attach a premium to dinar liquidity, political risk and the central bank’s active role in maintaining currency stability.
The sovereign market is currently sending a stronger signal than direct investment. Portfolio investors are comfortable with Serbia’s reserves, debt ratio and refinancing capacity. Strategic investors require greater confidence in electricity availability, legal predictability, labour supply, EU relations and long-term export access.
The principal fiscal risk lies beyond 2027. Expo-related construction is temporarily supporting GDP, employment and tax revenue. Once that cycle slows, Serbia will need private investment and export growth to replace the state as the main economic accelerator.
Infrastructure that removes transport, energy and logistics bottlenecks can support that transition. Projects with weak commercial use will leave the budget carrying operating and maintenance expenses after the construction effect has disappeared. Serbia’s borrowing capacity remains strong; the return generated by each additional euro of public capital expenditure is becoming the more decisive measure.
