Fiscal Council: Expenditures increase deficit to 3.5% of GDP

The 2026 budget review brings a noticeable and economically unjustified increase in the fiscal deficit from 3% to 3.5% of gross domestic product (GDP), or by 59 billion dinars, the Fiscal Council stated today in its assessment of the State Budget Review Proposal for this year, which is being considered in the Serbian Parliament.

The current trends in revenue and expenditure indicate that, as pointed out, without the review, the deficit in 2026 would amount to 2% to 2.5% of GDP.

“Therefore, the review essentially worsens the fiscal result by more than one percentage point of GDP. Such an extraordinary fiscal expansion would be economically justified in the event of a sudden deterioration in economic trends, when budget intervention temporarily stimulates demand and economic activity, thus mitigating the crisis. However, in 2026, there are no such circumstances,” the Fiscal Council assessed.

It is added that “on the contrary, the latest government projection has increased the economic growth forecast from 3% to 3.3%.”

In such a situation, in which the expected GDP growth of Serbia is close to its potential, additional stimulation of demand through fiscal expansion cannot, as assessed by the Fiscal Council, contribute to sustainable economic growth, but may increase inflationary pressures.

The main reason for the increase in the deficit is, as stated, a strong increase in expenditures, primarily for one-off payments to the population.

It is emphasized that the review increases republican expenditures by 172 billion dinars and revenues by 112 billion dinars.

“The most significant new policy is one-off payments to citizens, totaling almost 100 billion dinars, of which 71 billion will be financed from the budget and around 28 billion from the Shareholder Fund. Although payments to pensioners are differentiated according to the amount of pension, a large part of the payment program to the population remains indiscriminate, outside the systemic framework and of a temporary nature,” the document states.

It adds that “this implies very limited effects on poverty reduction, inequality and economic growth, and in the current macroeconomic conditions may even further stimulate inflation.”

It is pointed out that without these discretionary payments, the deficit would remain below 3% of GDP, i.e. within the limits prescribed by the general fiscal rules that are currently suspended.

The Fiscal Council, as emphasized, previously warned that the unnecessary suspension of these rules until 2029 opens up space for ad hoc fiscal policy conduct and undermines its credibility, and this year’s review is precisely an example of such a risk.

The biggest change, the Fiscal Council pointed out, relates to non-tax revenues, which have increased by almost 80 billion dinars, mainly due to expected payments of profits and dividends from state-owned enterprises and the NBS.

These inflows, as assessed, are “volatile by nature” and cannot be considered a permanent source for financing public spending, and their origin is not sufficiently transparently presented in the explanation of the rebalance.

Fiskalni savet Republike Srbije

Fiscal Council of Serbia

budget

budget review