Paunovic (Fiscal Council): Public investments were the driver of development, now the growth model needs to be changed

In the previous period, the state played a positive role by carrying out fiscal consolidation, reducing the budget deficit and lowering the share of public debt in GDP. Public investment served as the main engine of growth. However, that model of economic development now needs to change, said Blagoje Paunović, president of the Fiscal Council, speaking at the Kopaonik Business Forum.

- Economic growth in Serbia was driven by public investment, which increased from 2.5% of GDP in 2015 to 6.9% in 2025, Paunovic said during the panel “Serbian Economy in Focus – Trends, Risks and Opportunities.”

According to him, this growth was achieved by shifting decision-making and the implementation of investments outside regular regulatory procedures, through bilateral agreements and special laws.

He noted that the overall results of these investments have not been particularly strong, and that their structure is problematic. A large share has gone into transport and infrastructure, while sectors such as healthcare, education and utilities have seen little investment.

Another major issue, he added, is cost overruns and delays in project implementation.

Foreign direct investment has been another driver of growth. Paunovic said that in the period from 2012 to 2014 it amounted to about 3% of GDP, rising to 7.4% in 2019, before beginning to decline and reaching 2.6% in 2025.

The decline, he explained, is partly due to global economic conditions, as well as the fact that investments were initially attracted by low labor costs, which are no longer as competitive, with wages having increased.

He described agriculture as a telling but not particularly encouraging example of investment policy.

Subsidies for agriculture stood at 0.6% of GDP in 2015, rising to 1% and accounting for half of all subsidies. However, these measures have not delivered significant results: agricultural growth between the periods 2010–2012 and 2024–2025 was just 0.4%, while the rest of the economy grew by 37.1%, Paunovic said.

By comparison, agricultural growth in EU countries was higher; in Central and Eastern Europe it reached 12.3%, and in other economies 41.2%.

Paunovic stressed that while agriculture is not the primary engine of growth, it could still contribute more to overall economic expansion.

He attributed weak agricultural performance to policy inconsistency, uncertainty and frequent changes to subsidies introduced through government decrees, which have left farmers dissatisfied and, as he put it, “out on the streets.”

In his view, Serbia needs to shift from a state-led growth model to one based on markets and entrepreneurship.

- A radical shift is needed. The government has not adopted a comprehensive plan to ensure balanced sectoral development. There have been initiatives, including ‘Leap into the Future,’ but no clear system of priorities, monitoring or updates has been established. These programs lacked defined goals and feasibility studies, and therefore do not even have the status of formal policy documents, Paunovic said.

He also emphasized the need for the state to address human resources issues, noting that wage compression in the ratio of 1:4:6 has created staffing problems for the most responsible public-sector positions.

- The public sector is no longer competitive with the private sector in terms of salaries, and staff are leaving, he said.

The Fiscal Council advocates a sector-based approach to wages and easing pay compression. Paunovic added that a transparent public-sector salary registry should be established.

Finally, he stressed that stronger economic growth will require stronger institutions, the rule of law and a more effective fight against corruption.

Fiskalni savet Republike Srbije

Fiscal Council

Blagoje Paunovic

Kopaonik Business Forum

Public Investments