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

Scope performs monitoring reviews to determine whether material changes and/or changes in macro-economic 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 rating’s 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+/Positive; short-term local- and foreign-currency issuer ratings: S-3/Positive) on 15 January 2025.

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 ratings history can be found on www.scoperatings.com.

Key rating factors

For the updated rating report accompanying this review, please see here.

The Republic of Serbia’s BB+ ratings reflect the following credit strengths: i) well-established macroeconomic policy framework with a strong record of sustained and balanced growth, supported by steady FDI inflows; and ii) sound fiscal policies, reflected in a swift return to primary surpluses post-pandemic and the management of controlled budget deficits, resulting in a moderate public debt burden.

Despite challenging global conditions, Serbia maintained strong export levels and economic stability, achieving 2.5% real growth in 2023. Scope estimates that growth accelerated to 3.7% in 2024, driven by record-high FDI inflows of EUR 5.1bn. Domestic demand and robust foreign investments are expected to sustain growth, with the medium-term potential estimated at around 4%. Scope projects growth of 4.2% in 2025, reflecting strong domestic consumption and continued investment momentum.

Serbia’s effective budget management, coupled with high capital spending, supports a moderate public debt trajectory. Increased public investment under the ‘Leap into the Future - Serbia 2027’ programme is expected to sustain moderate fiscal deficits while maintaining a gradual downward trend in public debt. The budget deficit is estimated at 2.7% of GDP in 2024, rising to 3.0% in 2025 due to increased capital spending.

Serbia faces key rating challenges: (i) elevated external vulnerabilities, including a high structural current account deficit, significant external debt, and substantial exposure to foreign currency (primarily euros) within the financial system, encompassing both public and private debt; (ii) institutional weaknesses and geopolitical complexities related to Serbia's EU membership ambitions; and (iii) uncertainties about its access to and cost of its energy security following the imposition of US sanctions on Gazprom Neft and its subsidiaries, including Serbia's NIS, majority-owned by Gazprom Neft.

On January 10, 2025, the U.S. OFAC imposed sanctions on Gazprom Neft, Surgutneftegas, and their subsidiaries, including Serbia's NIS, majority-owned by Gazprom Neft. The sanctions mandate the full withdrawal of Russian ownership from NIS by February 25, 2025, to maintain operations and avoid further penalties, while specific details of the transition are expected to be announced in the coming weeks. NIS can continue operating during the transition period, but ownership restructuring must start immediately and receive U.S. approval. This divestment highlights Serbia's challenge in balancing its Russian ties with aspirations for closer Western integration.

While Serbia’s aspirations for EU membership drive policy decisions, the process remains politically challenging, particularly regarding relations with Kosovo and alignment with EU sanctions on Russia. The EU-backed draft agreement between Serbia and Kosovo, aimed at improving regional security and advancing Serbia’s EU accession goals, faces uncertainties in formalization and implementation. Serbia's progress toward EU membership is expected to hinge on the successful execution of this agreement.

The Positive Outlook reflects Scope’s view that risks to the ratings are skewed to the upside over the coming 12 to 18 months.

The ratings/Outlooks could be upgraded if, individually or collectively: i) governance, political and/or sanctions risks were redressed, such as via tangible progress in the longer-run accession to the EU; ii) the external position further strengthened, for instance due to robust exports or increased net FDI inflows; and/or iii) public debt-to-GDP were set on a firm downward path over the medium term .

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

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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