In October of last year, Serbia achieved a significant milestone when it received its first investment-grade credit rating, upgraded from non-investment grade by one of the world’s three major rating agencies, S&P Global Ratings. Serbian officials have announced that they expect similar decisions from the other two global agencies, Fitch and Moody’s, this year. On Friday, January 31, Fitch will decide whether it will follow S&P’s lead and upgrade Serbia’s rating or maintain its current BB+ rating. Moody’s, on the other hand, will assess Serbia’s situation and make a decision at the beginning of March.
Since October, significant changes have occurred both within Serbia and internationally. The collapse of the canopy at the reconstructed Railway Station in Novi Sad raised serious concerns about corruption related to state projects, and also highlighted issues of responsibility following the tragic accident that claimed 15 lives.
Protests have been ongoing across Serbia since November 1, and on Wednesday, Prime Minister Miloš Vučević resigned, leading to the collapse of the government. Political stability is a key factor when determining a country’s credit rating, and experts suggest that while protests could impact the decision, they are not the sole determining factor.
External factors also play a role. For instance, even before officially becoming president of the United States, Donald Trump announced plans to increase tariffs on the European Union, China and other countries. This could potentially affect Serbia’s credit rating, as the country’s economy is heavily dependent on its European and Chinese trading partners. A country with an investment-grade rating signals to investors that it is a lower-risk destination for investment, which, in turn, can lead to an increase in foreign direct investment and stimulate economic growth. An investment-grade rating also lowers borrowing costs when issuing bonds.
Will Fitch follow S&P’s decision?
FEFA professor Milan Nedeljković told Danas that he expects Fitch to maintain Serbia’s credit rating at its current level, rather than upgrading it to investment grade. According to Nedeljković, Fitch faces a dilemma: while Serbia’s macroeconomic situation is currently stable, political instability could negatively affect the rating decision.
“On the one hand, if Fitch were to follow S&P, an improvement in Serbia’s credit rating could be expected based on the stable macroeconomic situation,” Nedeljković said. “However, political instability in the country may impact the decision, as it is one of the factors considered when assigning or changing a rating.”
He also pointed out that the fact that S&P upgraded Serbia’s rating does not guarantee that other agencies will follow suit. “Each agency has its own credit rating methodology, so it doesn’t necessarily mean that Fitch will also upgrade Serbia’s rating just because S&P did,” Nedeljković explained.
Nedeljković also noted that international developments, particularly in the U.S., could have an impact on Serbia’s rating. “The tightening of trade flows, particularly the proposed tariffs from the U.S. toward the Eurozone and other partners, could affect smaller growing markets like Serbia,” he said.
Will protests affect Fitch’s decision?
Marko Malović, Dean of the Faculty of Business Economics, also believes that Fitch will likely follow the other rating agencies, with only minor deviations. However, he added that the ongoing protests could have an effect on Fitch’s decision, though it is too early to tell.
Credit agencies are known for adjusting their ratings based on economic and political conditions, but Malović emphasized that there is always the possibility of ratings being higher or lower than expected, depending on the situation.
Reasons why S&P might lower Serbia’s rating
In its report from October, S&P explained that Serbia could continue to receive upgrades, but also pointed out reasons why it could potentially lower the country’s rating.
The agency stated that Serbia’s rating could be upgraded if the country’s GDP growth, fiscal and external performance significantly exceed S&P’s projections. However, the agency also noted risks to Serbia’s credit rating, including the economic slowdown of key trading partners in the EU, particularly Italy and Germany, which absorb around 65% of Serbia’s exports. There are also concerns about potential energy supply shocks, as Serbia still relies heavily on Russian gas. Tensions in Kosovo and Metohija were also cited as a risk factor.
Additionally, S&P highlighted the increasing centralization of government decision-making in Serbia, warning that this could undermine long-term policy predictability and investor confidence, as well as reduce transparency in the government’s reform processes.
S&P also stated that Serbia’s EU accession process would remain slow and challenging, with the country’s ability to improve relations with Kosovo and comply with EU sanctions against Russia playing a key role in its future progress.
Credit rating scale overview
While each rating agency uses slightly different methodologies, their credit rating scales are similar. Below is S&P’s rating scale:
- AAA – The highest rating, indicating very low default risk.
- AA+, AA, AA- – High credit rating, but with slightly higher risk than AAA.
- A+, A, A- – Medium rating, indicating a solid ability to meet obligations but with moderate risk.
- BBB+, BBB, BBB- – Investment-grade, with slightly higher risk than higher ratings.
- BB+, BB, BB- – Non-investment grade, also known as “junk” or high-risk ratings.
- B+, B, B- – High risk of default.
- CCC+, CCC, CCC- – Very high risk, highly unstable.
