Serbia’s public finances remain supported by a public-debt ratio of 43.3% of GDP in August, down from 43.7% at the end of 2025, despite accelerating expenditure and a higher budget-deficit target. The government has raised its full-year deficit target to 3.5% of GDP, while increased public investment, household transfers and defence spending are reshaping the fiscal outlook.
Revenue and expenditure growth diverge
During the first eight months of the year, government revenue increased by 12%, driven by corporate income tax, social contributions, value-added tax and non-tax income. Expenditure grew faster, rising by 13.8% over the same period.
Public investment recorded a 28.6% increase, accompanied by substantial growth in public-sector wages, social transfers and purchases of goods. The government also announced almost EUR 1 billion in one-off household transfers, alongside higher defence and investment expenditure through the supplementary budget. The accumulated budget deficit through August stood at approximately 1% of projected GDP. Interest expenditure declined slightly, while public debt remained well below levels recorded earlier in the decade.
Debt levels and macro-financial conditions support fiscal capacity
Serbia’s public-debt ratio, combined with strong foreign-exchange reserves and a stable dinar, continues to support the government’s macro-financial position. The relatively low debt burden provides capacity for additional spending or borrowing, although the economic returns will depend on how public funds are allocated.
Infrastructure investment can support future revenue generation when projects reduce transport bottlenecks, improve utilities or increase the efficiency of cities. Such improvements can also encourage private investment. By contrast, household transfers and other current expenditure may support economic activity during weaker periods without necessarily increasing the economy’s future capacity to service public debt.
EXPO27 projects increase scrutiny of public investment
Serbia is entering an investment-intensive period linked to EXPO27 and other public projects, bringing project execution and expenditure management into greater focus for lenders and investors.
Key areas of due diligence include project selection, implementation quality, procurement discipline, lifecycle costs and the extent to which planned infrastructure corresponds with private-sector demand. Completing a project within its budget does not necessarily ensure a strong economic return if the investment fails to improve productivity or attract complementary capital.
The distinction between different forms of public spending is therefore becoming increasingly relevant to the assessment of Serbia’s fiscal position. Infrastructure that generates lasting economic benefits can strengthen the basis for future debt servicing, while expenditure that does not improve productive capacity may offer a more limited contribution to long-term fiscal sustainability.
Slower foreign investment increases reliance on public capital
Net foreign direct investment amounted to just 2.5% of GDP in the year to the second quarter, substantially below the levels recorded during 2021–2024. If private external investment does not recover, public investment will account for a larger share of Serbia’s growth financing. This would increase the importance of ensuring that government-funded projects attract follow-on private capital and support additional economic activity.
The current fiscal position provides room for expenditure, with public debt near 43% of GDP and a full-year deficit target of 3.5% of GDP. The sustainability of that position will depend on whether higher deficits persist alongside growth that remains reliant on consumption and weak private investment. For banks, bond investors and international financial institutions (IFIs), the allocation, execution and economic performance of Serbia’s next investment cycle are becoming central considerations in assessing the country’s sovereign outlook.
