Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Republic of Serbia (long-term local- and foreign-currency issuer and senior unsecured debt ratings: BB+/Stable; short-term local- and foreign-currency issuer ratings: S-3/Stable) on 5 May 2023.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

Serbia's BB+ rating is underpinned by its robust medium-term growth prospects and improved economic resilience, supported by a credible macroeconomic policy framework and steady net foreign direct investment inflows. The country benefits from moderate public debt and sound fiscal policies, complemented by continued reform efforts aimed at enhancing the fiscal policy framework. Despite a widening current account deficit, the National Bank of Serbia has rebuilt its gross international reserves since mid-2022, largely thanks to continued strong FDI inflows and recent external borrowing.

The near-term growth outlook for Serbia's small, open economy is constrained by factors such as high and prolonged inflation, tightening global and domestic financial conditions and a slowdown in European economies. Energy security remains a significant concern, but the completion of an interconnector with Bulgaria in 2023 should help mitigate this risk.

Ongoing wide current account deficits, substantial external debt, a large share of government debt and private debt denominated in foreign currency (euros and dollars) and institutional weaknesses constrain the BB+ rating. Additionally, the normalisation of relations between Serbia and Kosovo and substantial reform around the rule of law are crucial preconditions for Serbia's EU accession, and these are likely to remain longer-term challenges.

The Stable Outlook represents Scope’s opinion that risks to the ratings are balanced over the next 12 to 18 months.

The rating/Outlook could be upgraded if, individually or collectively: i) public debt-to-GDP were set on a firm downward path over the medium term, supported by fiscal consolidation or materially improved GDP growth prospects; ii) external vulnerabilities were reduced, which could be achieved through a sustained decrease in the share of public and private debt in foreign currency, or a considerable reduction in external debt and/or iii) Serbia’s institutional weaknesses were resolved more sustainably and the government’s capacity for reform were improved, such as via tangible progress towards long-term EU accession goals.

Conversely, the rating/Outlook could be downgraded if, individually or collectively: i) there is a consistent rise in the public debt-to-GDP ratio over the medium term, due to, for instance, a relaxation of fiscal policies or weakened growth prospects; ii) Serbia’s external vulnerabilities intensified, causing pressure on reserve adequacy or triggering a further accumulation of external debt; and/or iii) there is an external shock or prolonged geopolitical tensions that destabilise Serbia’s macroeconomic and financial situation.

For the updated scorecards accompanying this review, click here.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 27 September 2022) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Jakob Suwalski, Director.

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