Serbia’s draft fiscal strategy for 2026, with projections through 2027 and 2028, maintains the previously set fiscal policy direction despite slower economic growth, new economic measures, and increased international uncertainty earlier this year. The fiscal deficit is projected at 3% of GDP for 2025 and is expected to remain at this level through 2027, consistent with the prior strategy for 2025–2027.
A moderate deficit reduction to 2.5% of GDP is planned for 2028. With these targets, the public debt-to-GDP ratio is expected to slightly decline from 47.5% at the end of 2024 to 46.2% by the end of 2028, as debt grows at a slower pace than the economy.
The Fiscal Council, an independent state body, considers these quantitative fiscal goals achievable and sustainable without threatening macroeconomic stability. Public revenues and expenditures are deemed credibly projected, making the planned budget deficits realistic.
Although fiscal rules in the Budget System Law limit the deficit to 1.5% of GDP, the government has suspended this limit until 2029 to allow for higher deficits. The Fiscal Council maintains that adhering to stricter fiscal rules with a lower deficit would better protect against medium-term risks and enhance fiscal credibility. Still, it assesses the 3% deficit as not large enough to endanger fiscal sustainability or macroeconomic stability.
The planned deficit reduction in 2028 is seen positively, signaling a gradual return to fiscal rule limits.
However, the strategy is criticized for insufficiently addressing Serbia’s key structural public finance weaknesses, with fiscal stability being only one aspect.
Public expenditures in 2025 reflect recent policy changes, including salary increases for education, health, and police workers, higher funding for higher education, subsidized housing loans for youth, and the establishment of a child support fund. These new expenses are financed by savings in other budget areas such as goods and services, capital expenditures, and subsidies, preventing an increase in the fiscal deficit.
In the medium term, public spending growth is anchored to pension and public sector wage increases, projected to rise roughly in line with nominal GDP growth, at just over 7% annually.
The strategy also forecasts systemic improvements in public investment management starting in 2028. Public investments remain high at about 7% of GDP in 2025 and following years, largely driven by preparations for the international EXPO 2027 event in Belgrade, broader investment plans dubbed “Leap into the Future,” and defense purchases including Rafale fighter jets.
