Serbia increased public spending in 2026 as infrastructure investment and household support pushed expenditure growth above revenue gains. General government revenue climbed 12% year on year in the first eight months, while expenditure rose 13.8%, taking the consolidated budget deficit to approximately 1% of projected GDP. The gap was twice the level recorded over the same period in 2025.
A supplementary budget raised the full-year deficit projection to 3.5% of GDP, reflecting a more expansionary fiscal approach as the government funds infrastructure projects, defence and transfers to households.
Public investment rises alongside one-off household payments
Public investment increased by 28.6% year on year, driven by preparations for the EXPO27 programme and other infrastructure works. At the same time, the supplementary budget provided for nearly EUR 1 billion in immediate, one-off household transfers, equivalent to about 1% of GDP, alongside additional defence and investment expenditure.
Some infrastructure projects were scaled back as spending priorities changed. The combination of higher capital expenditure and direct household support means that the additional fiscal stimulus is reaching the economy through different channels.
Infrastructure spending can generate activity in construction during implementation and, where projects are appropriately selected, improve productivity through better transport links, utilities and public infrastructure. Household transfers tend to feed more quickly into consumption, retail and services, but their effect is less persistent once the funds have been spent. Serbia’s strong summer retail figures indicate that household demand is responding to income support, making the near-term effects of the transfers visible in consumer-facing sectors.
Revenue growth and lower debt provide fiscal room
Despite the widening deficit, Serbia’s public-finance position remains manageable. Public debt stood at approximately 43.3% of GDP in August, below its level at the end of 2025, while interest expenditure declined slightly during the first eight months of 2026. Revenue performance was supported by corporate income tax, social contributions, value-added tax (VAT) and non-tax revenue. The increase in receipts gives the government capacity to support economic activity without creating an immediate debt-sustainability concern.
For investors and lenders, however, the overall deficit figure does not reveal how effectively the additional spending will strengthen the economy. The distinction lies between expenditure that expands productive capacity and measures that primarily sustain current demand.
Public infrastructure can strengthen the fiscal return when it reduces operating costs for businesses, enables private investment and improves the efficiency of Serbia’s cities, logistics networks and industrial facilities. Repeated transfers that boost consumption without a corresponding increase in private investment offer a less durable basis for growth.
Inflation complicates the interaction between fiscal and monetary policy
Inflation is another consideration as government expenditure accelerates. Serbia’s consumer-price inflation rose to 4.1% in September, following a sharp decline during the summer. Wages, household credit and fiscal support are also strong, adding to demand-side pressures. If energy or services inflation remains persistent, further fiscal stimulus could make monetary easing more difficult.
This increases the interdependence of budgetary and monetary decisions. The stronger fiscal policy supports aggregate demand, the more carefully the central bank must assess the scope for interest-rate cuts. For businesses and borrowers, the interaction between public spending, inflation and interest rates affects financing conditions and the cost environment in which investment decisions are made.
EXPO27 investment faces a test of long-term economic returns
The EXPO27 investment cycle will be assessed not only on whether projects are delivered, but also on the economic assets and productive capacity they leave behind. Serbia has room to increase expenditure relative to many peer economies because of its public-debt position. That fiscal capacity makes project selection and execution particularly important, as the long-term benefits depend on whether spending improves infrastructure, raises productivity and attracts additional private capital.
The 2026 shift towards a more expansionary fiscal stance can support economic growth into 2027. Its longer-term effect will depend on whether higher public expenditure encourages productive private investment and expands the economy’s capacity, or primarily prolongs a consumption-led expansion.
