In the latest assessment by Standard & Poor’s, Serbia teeters on the brink of descending into the lower echelons of the investment grade spectrum. Although its credit rating remains at BB+, there’s a positive outlook this time around. This hint suggests that Serbia may ascend to a higher credit rating tier by 2025.
Serbia’s improved positioning on the global financial stage is attributed to its robust macroeconomic fundamentals. The Gross Domestic Product (GDP) continues its upward trajectory, anticipated to culminate at 3.5% in 2024, with projections by the International Monetary Fund envisioning a potential surge to 4.5% in 2025.
The influx of foreign direct investment is both dynamic and substantial, reaching approximately 4.5 billion euros in 2023, marking a 2% uptick from the preceding year. This surpasses the current account deficit, aided by a notable reduction in expenditures on energy imports, which totaled 5.1 billion euros in 2023, reflecting a 25% drop compared to 2022. Meanwhile, the current account deficit stands at a relatively modest 2.6% of GDP.
Serbia’s overall public debt remains manageable, thanks to the burgeoning GDP momentum, stable foreign reserves, and exchange rate. Despite an anticipated uptick due to significant ventures like BelExpo 27, it’s not expected to breach the 60% GDP threshold during project implementation.
In 2023, the fiscal deficit amounted to 2.2% of GDP, or 179.3 billion euros in absolute terms, an improvement compared to the projected 2.8% of GDP.
Forecasts indicate that inflation will align with the targeted 3% range by the close of 2024, with deviations of up to 1.5% permissible, laying the groundwork for potential relaxation in credit and monetary policies.
However, non-commercial risks persist, primarily stemming from Serbia’s internal political landscape. Despite efforts to contain it, a post-election crisis lingers, its resolution uncertain. Depending on the trajectory of this crisis, the political risk within the country may fluctuate, exerting downstream effects on Serbia’s credit rating. Additionally, the efficacy of regulatory bodies and other independent institutions is under scrutiny, given their role in shaping the business environment within the Serbian market.
Thus, while an investment credit rating remains within grasp, it’s tenuous, liable to falter amidst escalating autocracy and political turbulence. External variables such as geopolitics and potential energy crises could further complicate matters, pushing energy prices upwards, imperiling inflation management, and stymying economic growth dynamics.
