Serbia concluded 2025 with a budget deficit of 271.45 billion RSD, representing 2.6% of its GDP. This figure places the country’s public finances within a manageable macroeconomic framework, indicating that the economy is not facing immediate fiscal destabilization. However, the underlying factors contributing to this deficit are crucial for understanding the broader economic context. The fiscal balance reflects a government grappling with slower economic growth, heightened expenditure pressures, and dependency on industrial production and imported inputs.
The significance of the 2.6% deficit lies not only in its magnitude but also in its relationship to overall economic conditions. Real GDP growth was approximately 2% in 2025, while industrial output increased by just 0.9%. Additionally, the current account deficit expanded to €3.48 billion during the first eleven months of the year. The decline in net foreign direct investment and disruptions in the refinery sector further complicated the economic landscape. These factors created conflicting pressures on fiscal policy, which had to maintain stability while supporting essential state functions without compromising sovereign credibility.
On the revenue front, Serbia generated substantial nominal income, with total budget revenues reaching 2.278 trillion RSD, an increase of 136.79 billion RSD from the previous year. When adjusted for inflation, this represented a real revenue growth of 2.5%. While this outcome is commendable given the slow pace of economic expansion, it fell short of meeting Serbia’s medium-term investment goals and expenditure requirements. Revenue growth was positive but insufficient to counterbalance the faster growth of expenditures.
The composition of revenues reveals critical insights into Serbia’s fiscal health. Non-tax revenues, VAT, personal income tax, and excise taxes were the key contributors to revenue generation. Non-tax revenues saw an 18% increase in real terms, while VAT revenues rose by 1%, personal income tax revenues increased by 5.2%, and excises grew by 1.6%. In contrast, corporate profit tax revenues experienced a decline of 3.6% in real terms, alongside a significant drop of 35.6% in donation-related revenues.
This revenue pattern highlights Serbia’s reliance on consumption-based tax collections rather than profit-driven revenue streams. The decline in corporate profit tax reflects broader economic challenges characterized by sluggish industrial performance and uneven business activity. Furthermore, the reduction in donation revenues underscores the limited external grant support available to Serbia’s fiscal framework, which relies heavily on domestic tax collection.
Regarding budget execution, total realized revenues reached 97.1% of what was planned under budget law, with tax revenues falling short by 1.2%, non-tax revenues by 6.4%, and donations by an alarming 65.9%. Although this shortfall is not catastrophic, it indicates that fiscal execution was weaker than anticipated.
On the expenditure side, total budget spending amounted to 2.550 trillion RSD in 2025, representing an increase of 196.21 billion RSD from the prior year and a real growth rate of 4.4%, significantly outpacing revenue growth at 2.5%. This disparity between revenue and expenditure growth is a primary factor behind the widening deficit.
The internal structure of expenditures reveals that most upward pressure stemmed from current and quasi-current spending categories. Employee compensation saw a real increase of 19.8%, while spending on goods and services rose by 12.5%. Transfers to social insurance organizations also grew by 6.4%. These categories are essential for public sector functionality but indicate a shift towards operational spending rather than investment-driven growth.
Importantly, capital expenditures declined slightly by 1.6% in real terms during a period when infrastructure development is critical for Serbia’s economic ambitions. This decline raises concerns about the sustainability of future growth as capital investments are vital for enhancing logistics, energy efficiency, and overall industrial competitiveness.
Despite some offsetting reductions in other expenditure categories—such as transfers to local governments decreasing by 31%—overall spending continued to grow at a rate that contributed to the deficit.
The quality of budget execution remains noteworthy; total expenditures were executed at 95.9% of what was planned under budget law, reflecting internal reallocations that resulted in some categories exceeding planned levels while others fell short.
The December data further illustrate these trends; the budget recorded a deficit of 191.82 billion RSD for that month alone, which was worse than December of the previous year by nearly 51 billion RSD. Revenue growth was modest at 2.8%, driven mainly by increases in corporate profit tax (up 26.5%) and VAT (up 8%). However, expenditures surged by 14.7%, primarily due to rising capital costs (up 15.9%), interest payments (up an alarming 96%), and employee expenses (up 24%).
This late-year pressure highlights potential vulnerabilities within Serbia’s fiscal structure as rising interest costs can quickly alter financial conditions despite manageable sovereign debt levels.
While maintaining a moderate fiscal deficit may seem favorable for macroeconomic credibility, the underlying expenditure composition suggests that Serbia is entering a phase where fiscal quality will be increasingly important compared to quantity alone.
Looking ahead, Serbia faces critical questions regarding its ability to maintain its deficit within acceptable bounds while enhancing the quality of its fiscal policies—specifically redirecting resources towards capital formation and infrastructure development rather than allowing current expenditures to dominate its fiscal profile amidst ongoing strategic objectives such as industrial growth and social stability.
