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 30 January 2024.

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

For the updated Rating Report accompanying this review, click here.

The Republic of Serbia’s BB+ ratings reflect the following credit strengths: i) well-established macroeconomic policy framework with a good record of sustained and balanced growth rates, supported by steady foreign direct investment inflows; and ii) sound fiscal policies, reflected in good pre-pandemic budget outcomes as well as a rapid return to primary surpluses that result in a moderate public debt burden.

In 2023, Serbia saw lower energy import prices due to subdued domestic demand, yet manufacturing exports stayed relatively robust. Scope forecasts Serbia's GDP to grow by 2.8% this year and 3.3% in 2025, supported by decreasing inflation and rising real wages. This growth is further supported by steady investment, expected to reach its potential of approximately 4% over the medium term.

Serbia's budget performance remains robust despite recent ad-hoc spending measures, underpinned by strong revenues, notably from corporate income tax, and disciplined spending practices. Scope projects Serbia to achieve balanced primary accounts and a budget deficit of around 2.0% of GDP this year. The public deficit is expected to stay below 2.0% of GDP, contributing to the declining debt-to-GDP trajectory from an estimated 51.6% in 2023 to 50.2% in 2024, down to 45.0% of GDP in 2028.

Rating challenges include: i) elevated external vulnerabilities due to a high structural current account deficit, high external debt, and a prevalence of foreign currency, primarily in euros, within the financial sector, encompassing public and private debt; and ii) institutional weaknesses alongside geopolitical complexities associated with Serbia's EU membership aspirations.

The EU accession negotiations for Serbia have encountered obstacles due to reluctance to impose sanctions on Russia and persistent tensions with Kosovo. Challenges surrounding the early parliamentary and municipal elections in November 2023 underscore the necessity for tangible improvements and further reforms, particularly in governance aspects, to advance the accession process.

The Stable Outlook reflects Scope’s view that risks to the ratings remain balanced.

The ratings/Outlooks could be upgraded if, individually or collectively: i) public debt-to-GDP were set on a firm downward path over the medium term; ii) medium-term growth prospects improved, supported by strengthened external metrics; and/or iii) governance and/or or political risks were redressed more durably, such as via tangible progress in the longer-run accession to the EU.

Conversely, the rating/Outlook could be downgraded if, individually or collectively: i) there was a consistent rise in the public debt-to-GDP ratio over the medium term; ii) Serbia’s external vulnerabilities intensified, causing pressure on reserve adequacy; and/or iii) governance and/or political risks increased, affecting the quality and predictability of policymaking.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 29 January 2024) 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, Senior Director

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