Serbia’s fiscal position in the first quarter of 2026 looks stronger than the official plan but looser than a year earlier. That is the central budget signal from the latest MAT macroeconomic analysis: the state is not losing control of the deficit, but it is using expenditure more actively to support growth, public investment and sectoral stability at a time when industry remains uneven and external demand is uncertain.
The central government budget recorded revenues of 551.3bn dinars and expenditures of 649.2bn dinars in the first quarter, producing a deficit of 97.9bn dinars. The result was 80.3bn dinars better than planned, which gives the fiscal picture a degree of comfort. Yet the deficit was also 70.1bn dinars worse than in the same period of the previous year. That second comparison is the more important one for reading the direction of policy. Serbia is not moving into fiscal stress, but the fiscal impulse has clearly become more expansionary.
The expenditure structure confirms the shift. Real expenditure growth reached 21.3%, far above real revenue growth of 8.8%. The fastest increases came from subsidies, capital expenditure and public-sector wages, meaning the budget is now doing more than financing routine state operations. It is supporting investment, income flows and selected sectors at a point when the private industrial cycle is not yet strong enough to carry the whole economy.
This matters because Serbia’s growth model in early 2026 is becoming increasingly dependent on domestic demand and public execution. GDP expanded by around 3.0% year-on-year in the first quarter, but the production-side structure was uneven. Services, net taxes and trade supported growth, while industry and construction remained weaker. That mix naturally increases the role of fiscal policy. Public investment, subsidies and wage spending can cushion the economy while manufacturing normalises, but they also raise the standard for budget discipline.
Capital spending is the most productive part of the fiscal impulse when it is well executed. Serbia’s infrastructure needs remain substantial, from transport corridors and energy infrastructure to water, waste, grid, rail, public buildings and local connectivity. A higher capital budget can strengthen long-term competitiveness, lower logistics costs and support construction supply chains. It can also create short-term demand for materials, engineering, contractors, equipment and labour. The risk sits in execution quality rather than headline spending. Capital expenditure that is delayed, poorly procured or concentrated in low-return projects does not generate the same macro dividend.
Subsidies are more sensitive. A sharp rise in subsidies can support strategic sectors, energy security, agriculture, public enterprises or investment projects. It can also blur the line between temporary support and permanent dependency. In Serbia’s current setting, where the Pančevo refinery issue, energy costs and industrial weakness remain macro-relevant, some subsidy pressure is understandable. But investors will watch whether subsidies are targeted toward transition, infrastructure and competitiveness, or whether they become a recurring tool for absorbing structural inefficiencies.
The wage component also deserves attention. Public-sector pay supports household demand and reinforces the consumer-led part of the economy. Retail turnover rose strongly in March, while real wages continued to outpace inflation. The budget therefore feeds directly into the consumption cycle. That can be useful during an industrial slowdown, but it also raises the risk that demand grows faster than domestic productive capacity, especially when manufacturing remains uneven and imports begin to recover.
Serbia’s fiscal credibility remains anchored by a moderate public-debt position and an investment-grade rating, but the next phase of the story is less about whether the deficit is manageable and more about whether spending improves the economy’s supply side. The Q1 deficit being better than plan buys policy space. The deterioration compared with last year shows that the state is spending that space more actively.
The budget has become a stabiliser, but also a test of execution. Serbia can afford a period of stronger public investment and targeted support while inflation remains contained and debt metrics stay moderate. The larger question is whether higher spending builds capacity in the economy or simply keeps demand running ahead of a still-fragile industrial base.
