Serbia entered the second quarter of 2026 with strong foreign-exchange reserves, stable inflation and continued economic growth, but faced increasing pressure from weaker foreign direct investment, a widening fiscal deficit and significant foreign-currency exposure in public and private-sector debt.
Real GDP expanded by 3.2% year on year in the first quarter of 2026, although seasonally adjusted quarterly growth reached only 0.2%, indicating weaker momentum at the beginning of the year’s second quarter.
Inflation remained within the National Bank of Serbia’s target framework, while rising real wages continued to support household consumption, retail activity and lending growth.
Credit Ratings Reflect Improved Buffers and Structural Constraints
Serbia maintained an investment-grade sovereign rating of BBB- from S&P, while Fitch Ratings kept Serbia at BB+, one level below investment grade, and Moody’s assigned a Ba2 rating. The rating differences reflected recognition of Serbia’s stronger fiscal and external buffers, while also highlighting constraints related to institutional quality, external dependence and the pace of structural reforms.
Serbia’s euro-denominated EMBIG spread averaged approximately 126 basis points, unchanged compared with 2025 and lower than 166 basis points in 2024. Risk premiums increased towards the end of the first quarter as global financial-market volatility intensified, but Serbia remained competitively positioned compared with several higher-yielding regional sovereign issuers. Declining euro money-market and European Central Bank interest rates from their 2023–2024 peaks are expected to gradually ease pressure on Serbian borrowers with euro-indexed liabilities. At the same time, lower rates may reduce banks’ interest margins.
External Position Supported by Reserves and Lower Current-Account Gap
Serbia’s current-account deficit remained manageable and narrowed compared with the previous year. Higher merchandise exports and a larger services surplus reduced the economy’s external financing requirement. Foreign direct investment recorded a significant decline. Net FDI inflows in the first quarter of 2026 were substantially below levels seen in 2024 and 2025.
The narrower current-account gap allowed Serbia to absorb the weaker FDI performance in the short term. However, a prolonged decline in investment inflows could affect future activity in construction, manufacturing expansion, mining projects and renewable-energy development.
Foreign-exchange reserves remained the main external stability mechanism. Gross reserves covered 6.6 months of imports, while net reserves provided coverage equivalent to 5.5 months of imports, both exceeding the commonly used three-month adequacy benchmark. The reserve position improved further after the reporting period. By the end of June 2026, gross reserves held by the National Bank of Serbia (NBS) reached €29.61 billion, covering 6.8 months of imports and 164.3% of the M1 money supply.
Fiscal Deficit Expands as Public Spending Increases
The dinar remained broadly stable against the euro during the period, supported by NBS foreign-exchange interventions. Exchange-rate stability helped limit imported inflation and reduced risks for borrowers with euro-indexed loans, while maintaining the need for adequate reserves and consistent monetary policy. Fiscal indicators showed increased pressure. The rolling 12-month budget deficit moved towards approximately 3% of GDP, as public expenditure grew faster than government revenue.
Higher spending on capital projects, public-sector wages, pensions and Expo-related investments supported economic activity but increased government financing requirements. Public debt remained below 50% of GDP, despite approaching a nominal value of €40 billion. The debt ratio declined because nominal economic growth outpaced the increase in public liabilities.
Foreign-Currency Debt Remains Key Structural Exposure
Foreign-currency liabilities continue to represent a significant share of Serbia’s public debt structure. Approximately three-quarters of government debt was denominated in foreign currencies, while the dinar-denominated portion exceeded 20%. Around 70% of public debt was external, with the remaining 30% held domestically.
The foreign-currency structure provides access to larger international capital markets but leaves public finances exposed to changes in euro and dollar interest rates, sovereign risk premiums and exchange-rate movements. Increasing the domestic investor base for dinar-denominated securities would reduce sensitivity to external financial conditions.
Serbia’s financial position at the start of the next investment cycle remained supported by reserves, moderate debt levels and monetary stability, while policymakers faced the challenge of managing fiscal expansion and private-credit growth without weakening the external and inflation buffers built in recent years.
