Serbia has retained its BBB- investment-grade rating with a stable outlook from S&P Global Ratings, while higher public spending is reducing part of the fiscal capacity available to absorb future economic and financing shocks. S&P lowered its forecast for Serbian economic growth to 3.2% in 2026 from 3.3%, while the government’s budget revision raised the planned general-government deficit to 3.5% of GDP from 3.0%.
The unchanged rating means Serbia faces no immediate sovereign financing constraint from the review. However, the structure of the higher deficit remains relevant for investors in Serbian government debt.
Higher spending absorbs available fiscal space
Serbia entered the year with stronger-than-expected revenues. The Fiscal Council estimates that without the additional expenditure introduced through the budget revision, the deficit could have been around 2%-2.5% of GDP. Instead, additional spending is pushing the planned shortfall toward 3.5% of GDP.
The difference represents fiscal capacity that could otherwise have provided protection against weaker economic growth, higher energy costs or future financing pressures. Serbia’s investment-grade status remains important for access to institutional investors and financing conditions for the government, banks and major Serbian companies accessing international capital markets.
Infrastructure spending remains a major fiscal commitment
Serbia is simultaneously financing Expo 2027, railways, roads, urban infrastructure, energy projects and other public investments.
Investment remains an important component of economic growth, while the National Bank of Serbia expects GDP to expand 3.2% in 2026, supported by domestic demand and continued infrastructure investment. The fiscal issue is therefore linked to the amount of additional expenditure that can be accommodated alongside the investment programme without further reducing available fiscal reserves.
Strong revenues provided additional spending capacity
The Fiscal Council has criticised the budget revision on the grounds that stronger revenue collection could have produced a substantially smaller deficit. Instead, expenditure was increased. The Fiscal Council estimates Serbia’s potential economic growth at approximately 3.5%, close to the government’s growth expectations. The assessment indicates that the fiscal expansion is taking place while economic activity remains relatively resilient rather than during a severe economic downturn requiring substantial counter-cyclical support.
Borrowing costs affect fiscal flexibility
Although Serbia’s public debt remains moderate by European standards, debt levels are not the only factor determining fiscal capacity. The cost of servicing government borrowing also affects the resources available for other expenditure. The Fiscal Council has warned that relatively high interest rates on Serbian debt reduce available fiscal room. The pressure can increase as older, lower-cost obligations mature and are refinanced at prevailing market rates.
Maintaining investment-grade status can support financing conditions, while investors are also monitoring whether Serbia moves toward smaller deficits after the current investment cycle. A deficit remaining around 3%-3.5% of GDP would leave less room to respond to higher oil prices, weaker external demand or domestic economic shocks.
Energy spending remains a fiscal risk
Serbia’s exposure to imported energy adds another pressure point for public finances. Higher international oil prices have led the government to use temporary excise-duty reductions to limit domestic fuel costs. Prolonged measures would protect households and companies but also create additional fiscal costs. The energy sector may also require further investment and financing as Serbia expands renewable generation, electricity grids and storage while maintaining security of supply. The Fiscal Council has previously highlighted government guarantees linked to energy-sector borrowing as an issue that should be fully incorporated into assessments of public debt.
Post-Expo spending will shape the fiscal position
The current investment cycle is expected to moderate after its peak, making 2027 and 2028 important for Serbia’s fiscal trajectory. As Expo-related construction declines, the government could reduce extraordinary expenditure while continuing investment in productive infrastructure.
The government has indicated that it intends to return to a smaller deficit in 2027. For financial markets, the subsequent fiscal performance will determine whether Serbia can reduce the deficit while maintaining economic growth and infrastructure investment. Serbia currently retains investment grade, moderate public debt and substantial infrastructure investment, while the additional spending has reduced part of the fiscal capacity available for future shocks.
