Serbia’s next government will inherit public debt of around 45% of GDP, a budget deficit target increased from 3% to 3.5% of GDP, and declining foreign investment inflows. Economists warn that higher public spending and weaknesses in state institutions are reducing the government’s capacity to respond to external economic shocks.
Almost RSD 100 billion has reportedly been directed towards broad payments to citizens, while major infrastructure projects continue under special arrangements outside standard procurement procedures.
Fiscal policy and inflation pressures
The National Bank of Serbia (NBS) has maintained restrictive monetary conditions to contain inflation, while government transfers and higher current expenditure continue to support domestic demand.
Inflation fell to 2.2% in August, partly due to lower food prices, energy reserves and temporary tax measures. The central bank expects inflation to move towards approximately 4%, while core inflation remains higher.
Economists warn that another increase in energy prices could accelerate inflation, slow economic growth and raise borrowing costs. They argue that public spending should increasingly support productive investment in energy security, infrastructure, digitalisation, education and technology rather than short-term consumption.
Foreign investment model faces changing conditions
Net foreign direct investment fell by more than half in 2025 to approximately €2.3 billion. Serbia’s traditional approach of attracting manufacturers through low labour costs and employment subsidies is facing pressure from labour shortages, rising wages and weaker European manufacturing demand, particularly in the automotive industry.
Economists argue that future incentives should prioritise research and development, technology transfer, workforce training, domestic value added, Serbian suppliers and higher-value exports.
Potential growth sectors include data centres, energy, rail equipment and advanced technologies. They also argue that domestic and foreign investors should receive equal treatment, with subsidies awarded against transparent criteria and measurable results.
Government support shifts towards Expo-related projects
The structure of state incentives is changing, with support increasingly directed towards hotels and other investments associated with Expo 2027 rather than the automotive industry, which previously accounted for around 60% of subsidy payments.
Hotel payments in 2026 had reached approximately €18.4 million, around four times the amount recorded during the whole of the previous year. Signed hotel-support agreements exceeded €80 million.
Tax exemptions for large investors were estimated at approximately €274 million in 2023. Economists argue that eligibility thresholds favour larger companies over Serbian small and medium-sized enterprises. They have also questioned the composition of recent FDI figures, noting that a growing share has been associated with mining and construction. Some construction investment involves Chinese contractors implementing infrastructure projects financed through Chinese state-backed loans.
EPS and public-sector governance remain key issues
Elektroprivreda Srbije (EPS) is among the state-owned companies identified as requiring stronger organisational management and investment planning. More broadly, weak governance, political appointments, subcontracting and limited disclosure at public enterprises can create financial liabilities that are not immediately reflected in public-debt figures.
EPS could also serve as a major source of investment. Its relatively low leverage could enable it to raise up to €2 billion for hydropower, wind and solar projects, supporting domestic energy security and economic growth.
Public procurement transparency linked to EU financing
Economists have called for greater disclosure of public contracts, subsidies, tax incentives, guarantees and state-owned enterprise liabilities. One proposal would require projects worth more than €20 million to follow common procurement and disclosure standards, including publication of contracts and feasibility studies.
Transparency and institutional reform are also linked to Serbia’s access to EU funding. Of approximately €540 million expected through the first three tranches of the EU Growth Plan, Serbia had received around €61 million. Further disbursements were linked to progress on institutional and judicial reforms.
