Serbia’s revised 2026 budget deficit target of 3.5% of GDP is facing additional pressure from cash transfers, lower fuel-excise revenue and increased public investment. The budget revision raised the planned shortfall from 3.0% to 3.5% of GDP, bringing the projected deficit to RSD 396 billion, or approximately €3.4 billion. The revised plan added around RSD 59 billion, equivalent to about €504 million, to the original deficit target.
Cash transfers increase budget expenditure
The government allocated RSD 50 billion, or approximately €427 million, in payments to around two million citizens, including pensioners and recipients of social assistance. The transfers increase disposable income and support consumption, while adding to government expenditure as lower fuel taxation reduces revenue from excise duties. Economist said the final deficit could exceed the revised 3.5% of GDP target, citing the government’s decision to reduce fuel-excise duties in an effort to moderate retail prices.
Fuel tax reductions affect state revenue
Diesel and petrol excise duties have traditionally represented a significant and relatively stable source of revenue for Serbia’s budget. The reduction in fuel taxation is occurring alongside increased infrastructure spending, including expenditure associated with Expo 2027. The combination of lower excise income, social transfers and higher capital expenditure is adding pressure to the government’s financing position. A wider funding gap could require additional sovereign borrowing, increasing the amount of debt issued by the state.
Additional borrowing could raise financing costs
Higher debt issuance would increase Serbia’s exposure to international interest rates and investor sentiment. A deterioration in fiscal credibility could result in higher yields on government bonds and wider sovereign risk premiums. The fiscal position remains manageable at the current level, but the composition of expenditure is becoming increasingly relevant. Temporary transfers and support for loss-making state enterprises are using budget resources that could otherwise be allocated to productive infrastructure or directed towards reducing public debt.
