Serbia’s Ministry of Finance is preparing a change to the way state-backed borrowing by public enterprises is financed, introducing mandatory fees for government guarantees issued on their loans. The proposed amendment to the Public Debt Law would replace the current possibility that the state “may” charge a guarantee fee with a requirement that every state guarantee carries a charge. The finance minister would determine the conditions, collateral requirements, application process and commission level.
- Guarantee exposure reaches €1.66bn
- Guaranteed debt has already created budget costs
- Energy companies dominate guarantee risks
- Reform linked to state-aid rules
- Potential revenue depends on fee structure
- Guarantee pricing could influence investment decisions
- Lenders and stronger enterprises may adjust financing models
- Transparency remains a key requirement
- Fiscal risk management becomes a sovereign issue
The reform remains in the consultation stage before a formal public debate. The government has not yet published the fee structure, meaning the final impact will depend on whether Serbia introduces a symbolic administrative charge or a risk-based premium reflecting the likelihood that taxpayers may ultimately cover guaranteed obligations.
Guarantee exposure reaches €1.66bn
Serbia’s public debt totalled €41.14bn at the end of May 2026, equal to 43.7% of GDP. Direct state obligations accounted for approximately €39.48bn, while indirect obligations, mainly debt supported through state guarantees, stood at around €1.66bn.
The 2026 budget records guarantee exposure of approximately €1.669bn, including €462.2mn owed to domestic creditors and €1.207bn to foreign lenders. The largest beneficiaries of state guarantees include Elektroprivreda Srbije (EPS), Srbijagas, Elektrodistribucija Srbije, Elektromreža Srbije (EMS), Putevi Srbije, Srbija Kargo, Srbijavoz, Infrastruktura železnice Srbije, Železnice Srbije, Jugoimport SDPR, as well as the cities of Belgrade and Novi Sad.
Guarantees do not immediately represent a budget expense as long as borrowers continue servicing their loans. They transfer part of the borrower’s credit risk to the Republic of Serbia from the moment they are issued. A state guarantee allows companies with weaker financial profiles to obtain cheaper financing because lenders rely on government backing. The proposed fee system aims to introduce a clearer price for that transferred risk.
Guaranteed debt has already created budget costs
The fiscal impact of guaranteed borrowing became visible in 2025, when Serbia repaid RSD25.6bn of principal on guaranteed loans after original borrowers failed to meet their obligations. At an exchange rate close to RSD117 per euro, the amount represents approximately €219mn paid from the central budget to creditors on behalf of public-sector borrowers.
The figure is significantly higher than the nearly RSD2bn amount sometimes cited for formally activated guarantees. The difference is linked to accounting and budget classifications, as some repayments are recorded as servicing guaranteed obligations even where statistical definitions of activation are narrower.
The Fiscal Council previously estimated that around 70% of budget funds allocated for guaranteed-debt repayment were connected to Srbijagas, while the remaining 30% mainly involved railway companies, including Železnice Srbije, Infrastruktura železnice Srbije, Srbija Kargo and Srbijavoz.
At the end of September 2025, guaranteed debt stood at approximately €1.85bn, around €200mn lower than at the end of 2024. Of that amount, EPS accounted for about €585mn, Srbijagas for approximately €470mn, and railway companies for slightly below €190mn. By the end of March 2026, guaranteed debt had reached RSD199.3bn, with RSD122.6bn, or more than 61%, linked to EPS and Srbijagas.
Energy companies dominate guarantee risks
The concentration of guaranteed debt shows that Serbia’s fiscal exposure is closely connected with the energy sector. EPS differs significantly from Srbijagas and railway companies because it owns generation assets, earns electricity revenues and has the ability to generate profit. Its financial performance remains affected by hydrological conditions, coal production, electricity market prices, regulated tariffs and investment requirements.
Srbijagas has historically carried a combination of commercial obligations, regulated pricing responsibilities, supply-security functions and legacy liabilities. Railway companies operate public-service activities that are unlikely to become fully commercial without continued government support.
A uniform guarantee commission would not reflect these differences. A financially stronger regulated infrastructure operator should not necessarily face the same charge as an enterprise with recurring losses, weak liquidity and a history of transferring debt obligations to the state budget. A risk-based system would consider factors such as leverage, cash-flow coverage, liquidity, profitability, foreign-exchange exposure, loan maturity, collateral and the expected recovery value if a guarantee is activated. The structure of the guarantee would also influence pricing. A limited guarantee covering part of a senior loan presents a different risk profile from an unconditional guarantee covering principal, interest, penalties and additional costs.
Reform linked to state-aid rules
The proposed amendments also introduce a stronger connection with Serbia’s state-aid control framework. A state guarantee provided without an appropriate fee can create an economic advantage because it enables companies to obtain financing on conditions unavailable in normal market conditions.
For public enterprises engaged in commercial activities, such support may represent state aid. As Serbia continues aligning its legislation with EU standards, guarantees must become more transparent, proportionate and consistent with market-based risk assessment. A market-equivalent fee would not automatically eliminate state-aid concerns, but it would provide evidence that companies are paying for the credit enhancement provided by the state. It would also reduce differences between state-owned enterprises and private companies that must pay bank guarantee fees, provide collateral or accept higher borrowing costs without access to sovereign support.
Potential revenue depends on fee structure
The introduction of guarantee commissions could generate additional state revenue, although the amount would depend on the final model. Applying an illustrative annual commission of 0.5% to the current €1.67bn guarantee portfolio would generate approximately €8.3mn per year.
A 1% fee would produce around €16.7mn, while a 2% average charge would generate approximately €33.4mn annually. These calculations are only scenarios. The final legislation may apply mainly to new guarantees rather than existing obligations. Fees could also be charged once at issuance instead of annually on outstanding debt. Some loans provided by international financial institutions may be subject to specific agreements or policy considerations.
The main fiscal benefit is not expected to come from commission revenue. Even a 1% annual charge on the entire guarantee portfolio would recover less than one-tenth of the approximately €219mn in guaranteed principal repaid by the state in 2025. The larger effect would come from reducing future defaults and preventing projects from relying on government backing without sufficient repayment capacity.
Guarantee pricing could influence investment decisions
A meaningful guarantee fee would change how public enterprises assess borrowing decisions. Companies with weaker balance sheets and higher debt-service risks would face stronger incentives to improve financial performance before requesting additional state support. The current law allows guarantees only for loans financing capital investments and excludes routine operating expenses or liquidity needs. However, the distinction can become unclear when projects fail to generate enough revenue to service their debt.
A railway project may provide significant economic and social value while producing limited direct income. A gas investment may improve energy security while depending on regulated tariffs. Electricity infrastructure may generate regulated revenues over decades, while poorly structured industrial projects may not recover financing costs. Guarantee pricing would require these differences to be recognised during project approval. Public-service investments could continue receiving state support, but the subsidy element and fiscal exposure would become more visible instead of being embedded in guaranteed borrowing.
Lenders and stronger enterprises may adjust financing models
The proposed reform could also affect lenders by changing expectations around sovereign-backed borrowing. Because state guarantees reduce credit risk for banks, lenders may currently place less emphasis on the standalone financial strength of borrowers. Mandatory guarantee fees would not change the legal protection provided by the state but could reduce unnecessary guaranteed borrowing.
For stronger public companies, this could encourage greater reliance on their own balance sheets. Elektromreža Srbije (EMS) operates regulated transmission infrastructure and may be able to finance suitable projects based on its own cash flows. EPS, following its transformation into a joint-stock company and recent improvement in profitability, may gradually move towards financing structures where state support is limited.
Removing guarantees too quickly could increase financing costs and delay important energy and infrastructure investments. A gradual approach would allow financially stronger companies to borrow independently while preserving guarantees for projects with clear public value.
Transparency remains a key requirement
Guarantee commissions will only improve fiscal management if Serbia also strengthens disclosure of guaranteed obligations. Monthly public debt reports show aggregate levels of direct and indirect liabilities but do not provide a complete company-by-company overview of guarantees, including maturities, currencies, creditors, interest rates and repayment performance.
Annual budget documents provide additional information, but the data remains fragmented. A stronger disclosure framework would publish the original guarantee amount, outstanding balance, beneficiary, creditor, project purpose, currency, maturity, fee rate, risk category and any payments made by the state.
The government should also report recoveries from borrowers after guarantees are activated. When Serbia repays a guaranteed loan, the payment should create a receivable from the public enterprise rather than become an unexplained permanent subsidy. The state should disclose whether such claims are recovered, restructured, converted into equity or written off.
Fiscal risk management becomes a sovereign issue
Serbia’s debt ratio remains below the 60% Maastricht reference level, with public debt at 43.7% of GDP and a government fiscal-deficit ceiling of 3% of GDP for 2026. Investors assess more than official debt levels. They also examine guarantees, public-enterprise obligations, public-private partnerships and other contingent liabilities that could eventually become state debt. A transparent and risk-based guarantee system could strengthen Serbia’s fiscal credibility by showing that government support has measurable value and is managed according to financial principles.
The effectiveness of the reform will depend on whether fees reflect actual risk, whether weaker borrowers face higher charges and whether activated guarantees are followed by recovery measures. With €1.67bn of guaranteed debt outstanding and RSD25.6bn repaid for guaranteed borrowers in 2025, the introduction of symbolic charges would have limited effect. A properly designed guarantee-pricing system would make the cost of state support visible when borrowing decisions are made rather than when obligations eventually reach the public budget.
