Serbia is entering a more expansionary fiscal phase without yet sacrificing the debt metrics that have underpinned the improvement in its sovereign profile. The National Bank of Serbia characterises fiscal policy in 2026 as moderately expansionary, driven by higher wages, pensions, capital spending and measures supporting household consumption, while public debt remains at 44.1% of projected GDP.
In the first half of the year, the general-government fiscal deficit was around 1% of GDP, while the primary balance remained in surplus at approximately 0.6% of GDP. Real public revenues increased 8.6% year on year, supported primarily by taxes linked to wages and VAT as private consumption expanded.
The revenue performance reflects the strength of nominal income and corporate profitability. Company profits in 2025 were around 11% higher than in 2024, strengthening corporate tax receipts in 2026. Wage growth and consumer spending have similarly increased collections from payroll-related taxes and VAT.
Expenditure has been growing faster. Real public spending rose 10.1% in the first half, with higher public-sector wages and pensions among the largest contributors. Capital expenditure, procurement of goods and services, subsidies and other current spending also increased.
This marks a change in the fiscal impulse rather than a loss of control. The NBS explicitly describes the stance as moderately expansionary but argues that the inflationary effect should remain contained. Some measures aimed at consumption are temporary, while the reduction in excise duties on petroleum products was designed to offset part of the global energy shock rather than stimulate demand.
The distinction matters because fiscal policy is becoming more supportive while monetary policy remains cautious. The NBS has kept its key rate at 5.75%, headline inflation is expected to rise back above 4%, and domestic lending is growing 16.6% year on year. Fiscal and credit conditions are therefore supporting demand at a time when the central bank is deliberately avoiding premature monetary easing.
The debt position provides the buffer. General-government debt at 44.1% of GDP is well below the Maastricht reference value and substantially below the levels that constrain fiscal policy in many European economies. Serbia’s reserve position and international-market access reinforce that capacity.
In April, the sovereign issued roughly €3bn equivalent of Eurobonds in three tranches with five-, ten- and twelve-year maturities. Investor demand exceeded €8bn. The euro coupon rates associated with the three transactions were 4.25%, 4.66% and 4.875%, with the twelve-year bond carrying a green designation.
Part of the proceeds was used for liability management rather than new spending. The five-year issuance funded the early repurchase of bonds due in 2027, while other capital-market transactions in the corporate sector were used to repay financial loans. That reduces refinancing concentration even as gross bond issuance rises.
The fiscal story becomes more consequential when linked to Serbia’s €19.561bn Expo-era capital programme. Road, railway, municipal and other infrastructure investment is scheduled across several years. This will raise public investment and support construction but will also test execution capacity and medium-term expenditure discipline.
The NBS expects the investment cycle to help lift economic growth to 4.5% in 2027. Stronger nominal GDP growth itself supports debt sustainability by enlarging the denominator against which public debt is measured, but that mechanism depends on projects producing sufficient productive capacity rather than simply temporary demand.
Construction costs are one source of pressure. Prices of construction materials and components were already 10.8% higher year on year in June, suggesting that the real volume of infrastructure delivered for a fixed nominal budget can be eroded by cost inflation.
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The composition of spending therefore matters as much as the headline deficit. Expenditure that expands transport capacity, energy infrastructure or productive public assets has a different medium-term impact from recurring transfers. The NBS report does not provide project-level fiscal multipliers or rates of return, but it makes clear that capital investment is an important driver of the 2026-27 growth outlook.
The interaction with household incomes is equally important. Public-sector wages increased faster than private-sector wages in April-May, at 11.8% versus 10.2%, contributing to a broad increase in household purchasing power. Pension spending is also rising. These channels are supportive for consumption and tax revenue but can reinforce service inflation when labour markets are tight.
Serbia’s fiscal room therefore carries a policy trade-off. The state can absorb part of an energy shock, maintain social spending and finance large infrastructure commitments because debt remains comparatively moderate. But the stronger the domestic demand impulse becomes, the longer monetary policy may need to remain restrictive.
The NBS currently judges the balance manageable. Inflation expectations remain anchored, public debt is stable at a relatively low level, and the economy is expected to accelerate rather than slow under the investment programme. The first-half primary surplus also demonstrates that the fiscal accounts retain a degree of underlying resilience despite the headline deficit.
The more demanding test arrives as Expo-related construction reaches its peak. Serbia’s current fiscal position allows it to spend more aggressively than it could during earlier periods of macroeconomic vulnerability. The challenge is to preserve the 44% debt ratio and improved sovereign-risk profile while converting a temporary investment surge into assets that continue to support growth after 2027.
