Saturday, April 13, 2024



Serbia Flag

GDP: USD63.5bn (World ranking 84)
Population: 6.8mn (World ranking 108)
Form of state: Parliamentary Republic
Head of government: Ana Brnabić (PM)
Next elections: 2027, Presidential and legislative


  • Strong growth potential
  • Comfortable level of foreign exchange reserves
  • Track record of currency stability
  • Low labor cost plus generous state subsidies for foreign companies • Continued substantial FDI inflows


  • Unresolved Kosovo conflict
  • Elevated public debt
  • High external debt burden, including external arrears
  • Deficient infrastructure (roads, railways)
  • Elevated level of perceived corruption and bureaucracy

Economic overview

Growth to pick up supported by lower inflation

The economic outlook for Serbia has deteriorated because of the war in Ukraine. Previously, the country had emerged as a sound economic performer in the Emerging Europe region. Average annual real GDP growth increased from just +0.7% in 2010-2014 (compared to a regional average of +3.7%) to +3.2% in 2015-2019 (vs. +2.8%). In 2020, Serbia’s economy was less hit by the global Covid-19 pandemic than most others: real GDP declined by a comparatively modest -0.9% (while the whole region contracted by -2.3%) and rebounded to an expansion of +7.6% in 2021 (vs. +6.8% for the region). However, in 2022-2023, annual growth dropped to just above +2% amid the energy crisis and surging inflation in the wake of the war. Looking ahead, real GDP growth is forecast to pick up to an average annual +3.5% in 2024-2025, thanks to strengthening consumer spending, supported by lower inflation and accelerating investment expansion.

Inflation pressures will ease but not vanish while currency stability is expected to be maintained in 2024. The monetary policy framework is officially based on inflation targeting but in practice also on a “managed” exchange rate float. The National Bank of Serbia (NBS, the central bank) aims to keep the increase in consumer prices within a 3%±1.5pp band in 2024-2026. However, consumer prices increased beyond the upper band of the target range in September 2021 and eventually rose to a peak of 16.2% in February 2023, mainly because of surging food and energy prices, but also due to some supply-chain and labor-market disruptions. As these effects are gradually fading, inflation decreased to 7.6% at end-2023 and is likely to fall back to the NBS’s target range towards the end of 2024. The NBS embarked on a monetary tightening cycle late in April 2022. It hiked its key policy interest rate by a cumulative 550bps to 6.50% in July 2023 and has kept it stable since. The exchange rate has remained remarkably stable at 117-118 RSD per EUR since mid-2019 and we expect this to remain the case in 2024.

Gradually improving public and external finances

Although recent global crises have halted the fiscal consolidation path in Serbia, public finances should remain manageable in the near term. Supported by IMF advice, fiscal consolidation had much advanced in 2016-2019. The annual fiscal account was near balanced in this period, after large deficits until 2015, so that public debt declined from 71% of GDP in 2015 to 52% in 2019. Then the fiscal responses to the Covid-19 crisis and the impacts of the war in Ukraine have worsened public finances. Serbia posted annual fiscal deficits of approximately -8% of GDP in 2020, -4% in 2021 and -3% in 2022-2023. Going forward, we forecast a gradual moderation of the annual shortfall in 2024-2025 thanks to the economic recovery and a reduction in energy-related stimulus measures. Meanwhile, total public debt has declined from 57% of GDP in 2020 to around 52% and is forecast to gradually decrease further in the next years.

Serbia’s external finances are projected to stabilize in the near future after they were hit hard in 2022 because of the energy-price surge. The annual current account deficit narrowed to just over -4% of GDP in 2020-2021 but then widened markedly to around -7% of GDP in 2022, mainly because of sharply increased energy import costs while nominal export growth softened amid the global slowdown. However, the shortfall is estimated to have declined to about -2.5% in 2023 because of falling energy prices and softening domestic demand. As the latter is expected to recover in 2024-2025, we forecast the annual external deficit to widen again to around -3.5% of GDP in the next two years. Meanwhile, gross external debt is projected to remain high at over 60% of GDP in the near future. The ratio is higher than that of peers and includes ongoing external arrears (approximately 6% of the gross external debt); hence close monitoring is warranted.

Meanwhile, foreign exchange reserves recovered to a new peak of EUR22bn at end-2023, helped in part by disbursements under the two-year IMF Stand-byArrangement (SBA) agreed in December 2022 as well as the inflow of other funds, including USD1bn from the Abu Dhabi Fund for Development. As a result, the import cover of reserves improved to a comfortable level of more than five months in December 2023 (up from a low of 3.2 months in May 2022). In other terms, the reserves’ coverage of all external debt payments maturing within 12 months increased to over 350% (well above an adequate level of 125%). Overall, external liquidity and debt risks appear manageable in the near term but will require continued monitoring in the medium term.

Political and governance challenges remain

Systemic political risk had gradually improved in Serbia from 2014 to 2022 but experienced a setback at end-2022 as tensions in northern Kosovo rose sharply to dangerous levels. A serious violent conflict has been so far averted because both sides made concessions under substantial international pressure. We expect that the situation between Serbia and Kosovo will remain tense and that a resolution of Kosovo’s status will remain elusive in the next two years at least. The Serbian government is committed to EU integration while maintaining good relations with Russia and China. But the Kosovo issue, Serbia’s close relations with Russia as well as EU concerns over the rule of law are likely to constrain Serbia’s progress towards EU accession.

The business environment in Serbia is slightly below average in our assessment of 185 economies. The Heritage Foundation’s Index of Economic Freedom 2023 survey assigns the country an adequate rank of 58 out of more than 180 countries. However, the World Bank Institute’s annual Worldwide Governance Indicators surveys continue to indicate considerable weaknesses regarding regulatory quality and, in particular, the rule of law and measures to combat corruption. Moreover, our proprietary Environmental Sustainability Index ranks Serbia only 142nd out of 210 economies, reflecting serious weaknesses regarding renewable electricity output, water stress and the recycling rate.


CEOWORLD magazine - Insights - Serbia