According to Danas, the Serbian government is opting for a different approach, even though this could be an excellent opportunity to reduce both the deficit and public debt.
The budget deficit is set to rise from approximately 1.7 billion euros to 2.2 billion euros. In terms of GDP, the deficit will increase from the planned 2.2% to 2.9%.
The Fiscal Council highlights that this marks the first time since 2020 that a budget rebalancing plan has projected a deficit greater than the previous year’s actual results. They emphasize that this shift indicates a move towards a more expansionary fiscal policy, which they do not recommend during a period of high inflation and strong domestic demand. The Council argues that it would be more prudent to leverage favorable fiscal conditions to reduce the budget deficit and national borrowing. Although the government plans to exceed its previous deficit target of 1.5% of GDP and raise it to 2.5% in the fiscal strategy, the Council believes that this deterioration in fiscal conditions is not severe enough to threaten Serbia’s macroeconomic stability.
The anticipated increase in the fiscal deficit will inevitably lead to higher national borrowing, regardless of current deposit levels. However, a positive aspect is that nominal GDP is expected to grow at a faster rate in 2024, which should slightly decrease the share of public debt in GDP. Serbia’s GDP in euros is projected to rise nearly 10% in 2024, from 69.5 billion euros to 76.4 billion euros, while public debt is expected to grow by around 6%, from 36.5 billion euros to approximately 38.5 billion euros.
Consequently, the public debt’s share of GDP is anticipated to drop from 52.3% at the end of 2023 to below 52% by the end of 2024. Nevertheless, there are cautionary notes. The Council warns that the projected high GDP growth in euros relies on factors that are not sustainable in the long run.
They indicate that this growth, alongside solid real GDP growth of 3.8%, is influenced by relatively high average inflation (4.7%) and a higher GDP deflator of 5.7%, coupled with a slight nominal strengthening of the dinar against the euro.
Another significant and positive development is that the increase in the deficit is largely driven by discretionary rather than structural government spending. The Council assesses that both revenues and expenditures are conservatively planned, and there is potential for the actual deficit to be lower than anticipated. In such a case, they urge the government not to allocate these funds for ad hoc measures or cash distributions.
While budget expenditures have risen by 1.7 billion euros, the internal redistribution of expenditures amounts to 2.2 billion euros.
Rebalancing and record public investments
A significant portion of the budget increase will go towards capital investments, which have risen by nearly 103 billion dinars, or 850 million euros. Public investments are now projected to exceed six billion euros in 2024, accounting for about 8% of GDP—setting a record for Serbia.
This increase can primarily be attributed to two projects: EKSPO and the National Stadium, along with related initiatives, as well as the procurement of “Rafale” aircraft from France.
For EXPO 2027, which includes essential infrastructure like the National Stadium and the railway from Zemun to the stadium, costs have surged by about 370 million euros in the 2024 rebalancing, increasing from the initially planned 340 million to 710 million euros.
Milojko Arsić, a professor at the Faculty of Economics in Belgrade, notes that without the rebalancing, the budget deficit this year would have been around 1% of GDP, which would represent a favorable fiscal outcome.
“Now, the rebalancing has raised the deficit to 2.9% of GDP, which is significant. Some expenditures will carry over into the following years, such as payments for the Rafales this year and next year,” he explained.
