Serbia Targets Lower Debt Ratio Through 2029 Amid Active Market Financing

Serbia plans to maintain public debt below the 60% of GDP benchmark and gradually reduce debt levels through 2029, while continuing to access domestic and international capital markets, according to the country’s Public Debt Management Strategy 2027–2029.

The strategy projects general government debt at 43.9% of GDP by the end of 2029, while central government debt is forecast at 43.4% of GDP under the baseline scenario. Authorities are pursuing a combination of debt-ratio reduction, refinancing operations, currency-risk management, domestic bond-market development and selective use of external financing. The projected path extends a longer-term trend in public finances. Central government debt declined from 67.2% of GDP at the end of 2015 to 44.4% of GDP at the end of 2025, reaching 41.8% of GDP by March 2026.

At the end of March 2026, general government public debt totaled RSD 4,657.0 billion, equivalent to approximately EUR 39.66 billion or 42.1% of GDP. The total included RSD 4,421.4 billion in direct central government obligations, RSD 199.3 billion in guaranteed debt and RSD 36.3 billion in non-guaranteed local government debt.

Debt Servicing Remains Significant

Although debt ratios are projected to decline gradually, Serbia faces substantial refinancing requirements throughout the strategy period. Principal repayments, including buyback operations, are forecast at RSD 816.7 billion in 2026, RSD 856.0 billion in 2027, RSD 822.7 billion in 2028 and RSD 766.5 billion in 2029. Interest expenditures are expected to rise from RSD 211.8 billion in 2026 to RSD 250.2 billion by 2029. Combined principal and interest obligations are projected to decline from 9.3% of GDP in 2026 to 7.4% of GDP in 2029, while Serbia remains an active borrower and issuer in debt markets.

Under the baseline forecast, general government debt is expected to stand at 44.7% of GDP in 2026, 44.3% in 2027, 44.1% in 2028 and 43.9% in 2029. Central government debt is projected at 44.3%, 43.8%, 43.6% and 43.4% of GDP, respectively.

Currency Composition Remains a Core Risk Factor

Foreign-currency exposure continues to dominate Serbia’s debt portfolio. At the end of March 2026, the debt stock consisted of 60.9% euro-denominated debt, 21.4% dinar debt, 12.0% U.S. dollar debt, 5.6% SDR-denominated obligations and 0.2% in other currencies.

The strategy notes that the share of dinar-denominated debt declined from 30.5% at the end of 2020 to 21.1% of central government debt by March 2026, largely because external financing became more attractive and accessible during recent market cycles. Authorities have set a medium-term objective of maintaining dinar-denominated debt at no less than 30% of total public debt. The strategy indicates that local-currency issuance will continue to expand, although borrowing decisions will remain influenced by market pricing, investor demand and maturity profiles.

A parallel objective is to ensure that at least 65% of foreign-currency debt remains denominated in euros, reflecting the importance of the euro area for Serbia’s trade, investment and financial sectors.

Debt Portfolio Rebalanced Through Hedging Operations

The government has increasingly relied on derivatives and cross-currency swaps to reduce exposure to non-euro liabilities. According to the strategy, the share of U.S. dollar-denominated debt fell from 33.9% at the end of 2016 to 12.1% by March 2026 through transactions converting obligations denominated in U.S. dollars, Chinese yuan and UAE dirhams into euro liabilities.

One highlighted transaction was the June 2024 ESG Eurobond worth USD 1.5 billion, which was swapped into euro obligations at a fixed rate of 4.754%. A second major transaction occurred in May 2026, when Serbia issued a USD 1.25 billion ten-year Eurobond carrying a 5.50% coupon, which was subsequently converted into euro debt with an effective coupon of 4.66%.

International Bond Issuance Supports Liability Management

The May 2026 Eurobond transac a 4.25% yield, with proceeds used for the early redemption of debt maturing in 2027. A second tranche comprised EUR 900 million in twelve-year green bonds priced at 4.875%, designated for eligible environmental investments including railway modernization, rolling stock acquisition and the Belgrade Metro project.

The third tranche was the USD 1.25 billion ten-year issue later swapped into euro-denominated liabilities. The transaction combined refinancing activity, ESG-linked funding and currency-risk management within a single market operation.

Sovereign Ratings and Investor Access Improve

The strategy highlights Serbia’s improved standing among international credit-rating agencies. On 4 October 2024, S&P Global Ratings upgraded Serbia to BBB- investment-grade status with a stable outlook. The rating was reaffirmed in March 2026.

Fitch Ratings maintained Serbia at BB+ with a positive outlook, while Moody’s Investors Service confirmed a Ba2 rating with a stable outlook.

Authorities expect investment-grade status to broaden participation from institutional investors that are restricted from holding non-investment-grade sovereign debt and to support lower financing costs over time.

Domestic Bond Market Expansion Continues

The strategy places significant emphasis on developing Serbia’s domestic debt market. Serbian dinar benchmark securities have been progressively included in the J.P. Morgan GBI-EM Global Diversified Index, with additional benchmark bonds added during 2024, 2025 and 2026. Settlement infrastructure has also improved through Clearstream connectivity, while authorities continue to pursue further post-trade integration, including potential Euroclear-related settlement enhancements.

These measures are intended to improve liquidity, reduce transaction costs and expand foreign investor participation in local-currency securities. By the end of March 2026, 100% of outstanding dinar government securities consisted of instruments with original maturities of at least three years, compared with 38.3% at the end of 2013. Non-resident investors held 12.9% of outstanding dinar government securities at the end of March 2026.

Risk Management Targets and Portfolio Metrics

The strategy addresses refinancing, exchange-rate, liquidity, market, credit and operational risks through a series of portfolio targets. At the end of March 2026, 65.7% of general government debt carried fixed interest rates, while 34.3% was subject to variable rates. Within the floating-rate portfolio, EURIBOR-linked debt accounted for 71.9%. Authorities aim to maintain variable-rate debt within 25% ± 5%, keep the Average Time to Refixing above 5.0 years and maintain the weighted average interest rate on domestic-currency debt below 6.0%.

Four borrowing scenarios were evaluated for the 2027–2029 period. The baseline S1 scenario combines domestic and foreign-currency funding. S2 assumes financing through U.S. dollar Eurobonds, S3 relies on euro-denominated Eurobonds, while S4 represents an expanded dinarization strategy based on twelve-year dinar securities.

Stress Tests Highlight Exchange-Rate Exposure

The strategy identifies exchange-rate movements as the most significant risk to debt sustainability. Under the baseline scenario, central government debt reaches 43.4% of GDP in 2029. A hypothetical 15% depreciation of the dinar against all currencies would increase the ratio to 46.9% under S1, 47.4% under S2, 47.3% under S3 and 46.1% under S4.

Interest-rate shocks primarily affect debt-servicing costs rather than debt levels. Interest expenditures in 2029 are projected at 1.8% of GDP under the baseline S1 scenario and 1.9% of GDP under S2–S4. Under a severe interest-rate shock, those figures rise to 2.2% of GDP under S1, 2.4% under S2 and S3, and 2.6% under S4. Portfolio indicators show that under the preferred S1 scenario, the average applied interest rate reaches 4.47%, average maturity stands at 7.3 years, fixed-rate debt rises to 72.3%, and foreign-currency debt accounts for 71.8% of the portfolio.

Under the more aggressive dinarization scenario S4, foreign-currency debt declines to 39.5%, while the applied interest rate increases to 4.74%.

Growth and Investment Remain Central to Debt Dynamics

The strategy identifies nominal GDP growth as the largest contributor to debt-ratio reduction. Growth is projected to reduce the debt ratio by 2.7 percentage points in 2026, 3.5 percentage points in 2027, and 2.8 percentage points in both 2028 and 2029. Interest expenditures add approximately 1.8 to 1.9 percentage points annually, while the primary fiscal balance contributes positively to debt reduction.

The document also confirms continued financing of public investment through multilateral and bilateral project loans, indicating that infrastructure and development projects will remain part of the government’s borrowing strategy.

Guaranteed Debt Continues to Decline

Serbia’s stock of guaranteed debt has fallen substantially over the past decade. Guaranteed public debt decreased from EUR 2.8 billion at the end of 2013 to EUR 1.7 billion at the end of March 2026. Its share of GDP declined from 7.6% to 1.8% during the same period.

The strategy identifies tighter control over guarantees as a factor supporting debt sustainability while noting that guarantee activation and liabilities elsewhere in the public sector remain potential fiscal risks.

For domestic banks and institutional investors, the strategy signals continued issuance of medium- and long-term dinar securities, supported by benchmark reopenings and index-eligible instruments. For international investors, Serbia’s investment-grade rating from S&P, inclusion in the J.P. Morgan GBI-EM index, Clearstream access and potential Euroclear settlement integration are expected to increase institutional accessibility to the country’s local-currency debt market.