Rating action

Scope Ratings GmbH (Scope) has today affirmed the Republic of Serbia’s long-term issuer and senior unsecured debt-category ratings at BB+, in both local- and in foreign-currency, and revised the Outlooks to Stable, from Positive. The short-term issuer ratings are affirmed at S-3 in local and in foreign currency, with the Outlook revised to Stable, from Positive.

The revision of Serbia’s Outlook to Stable from Positive reflects rising political uncertainty and slower reform progress, persistent institutional weaknesses, and heightened regional geopolitical risk. These factors weigh on the quality and predictability of policymaking. At the same time, the affirmation of the BB+ ratings reflects the country’s strong GDP growth and solid FDI inflows, modest public debt, and a stronger external position.

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Key rating drivers

Rising political uncertainty and slower reform momentum. The revision of Serbia’s Outlook to Stable from Positive reflects increased political volatility and a weakening reform outlook. The resignation of Prime Minister Miloš Vučević in early 2025, following widespread protests over governance, environmental concerns, and public accountability, highlights persistent risks to political stability. Although a new government has since taken office, heightened fragmentation and reduced consensus-building capacity are likely to impede structural reform implementation.

Recent political changes risk slowing reform momentum at a time when implementation remains uneven, particularly in areas such as state-owned enterprise restructuring and alignment with EU governance standards. The deterioration in Serbia’s political climate risks delaying commitments under the IMF-supported Policy Coordination Instrument (PCI), weakening investor confidence. Uncertainty around policy continuity raises execution risks across fiscal and structural agendas.

Institutional weaknesses and governance constraints. Serbia’s institutional performance remains a structural credit constraint. World Bank governance indicators consistently point to deficiencies in rule of law, control of corruption, and government accountability. Despite over a decade of formal EU accession negotiations, Serbia has provisionally closed only two of thirty-five chapters as of mid-2025, reflecting limited progress on institutional alignment.

Domestic political tensions and contested elections have further eroded public trust and highlighted governance shortcomings. These weaknesses reduce policy predictability and limit the implementation capacity of key structural reforms, such as those requiring legislative cohesion and cross-party support. Despite constitutional changes in 2022, concerns persist over executive influence in judicial appointments and oversight bodies. Political pressure on institutions such as the Anti-Corruption Agency and public media continues to weaken the credibility of key checks and balances. This environment undermines Serbia’s ability to meet EU accession criteria and maintain access to conditional financial support.

Geopolitical and external risks. Serbia faces elevated geopolitical risk stemming from its non-aligned foreign policy and regional tensions. The country continues to balance relations between the EU and non-Western partners, notably Russia. Its reluctance to adopt EU sanctions on Russia amid the ongoing Ukraine conflict has strained ties with the EU institutions, complicating accession efforts.

The EU-facilitated Ohrid Agreement aimed at normalising relations with Kosovo remains only partially implemented. Serbia continues to receive substantial EU financial support, primarily through the Instrument for Pre-accession Assistance and the EU's Growth Plan for the Western Balkans. However, future disbursements depend on sustained reform progress and compliance with political commitments aligned with EU expectations. Delays in normalisation with Kosovo and broader governance concerns could slow the pace of EU-related funding, which plays a key role in supporting investment, infrastructure development, and economic convergence. Reduced access to this support would also increase external financing risks and weigh on long-term growth prospects.

Emerging geopolitical risks are contributing to a less favourable external environment. Oil prices have risen notably in recent months, reflecting heightened tensions in the Middle East, including the risk of supply disruptions stemming from the conflict involving Iran. For Serbia, this trend poses downside risks, given its reliance on energy imports and exposure to potential sanctions-related disruptions in the oil sector.

Finally, the looming expiry of U.S. sanctions waivers for NIS, Serbia’s main oil company majority-owned by Russian firms, poses a significant risk to Serbia’s energy security. If waivers are not renewed, crude oil supplies to Serbia’s only refinery could be disrupted, potentially leading to fuel shortages and broader inflationary pressures and weighing on the country’s external balance. At the same time, Serbia is negotiating a new long-term gas contract with Russia, highlighting its continued reliance on Russian energy. While securing low-cost gas could support affordability and industry competitiveness, it also increases Serbia’s vulnerability to geopolitical tensions and misalignment with EU sanctions and energy diversification efforts. These factors raise Serbia’s exposure to external shocks.

Credit strengths: Strong GDP growth supported by solid FDI inflows, modest public debt, and a stronger external position.

Strong growth supported by resilient FDI inflows. Serbia’s real GDP expanded by a solid 3.9% in 2024, driven primarily by strong private consumption and investment. However, growth momentum slowed through the year, with flash estimates showing a deceleration to 2.0% year on year in the first quarter of 2025. Downside risks stem from subdued external demand, rising global protectionism, and geopolitical uncertainty. Serbia’s growth outlook is further weighed down by several months of political unrest and ongoing student-led protests and blockades, which have disrupted economic activity. For the full year 2025, Scope expects GDP growth to moderate to 2.9%, before rebounding to 3.7% in 2026, supported by robust domestic demand, public infrastructure investment and sustained FDI inflows. Despite external headwinds, services remain a resilient contributor to growth.

Serbia remains exposed to external risks due to its high reliance on EU demand, especially from Germany (AAA/Stable), and its energy dependence on Russian gas via the Balkan Stream pipeline. Serbia has maintained solid FDI inflows across manufacturing and automotive sectors, with growing investment in ICT-related areas such as software development, IT services, and telecom infrastructure. This trend reflects Serbia’s relatively skilled and cost-effective labour market. Sustained FDI performance supports external financing and underpins Serbia’s economic resilience.

Inflation in Serbia moderated to 4.7% in 2024 from 12.4% in 2023, reflecting easing food and energy prices, though it rebounded slightly in the second half of the year. By May 2025, inflation had slowed to 3.8% year-on-year, near the upper bound of the central bank’s target range, with core inflation higher at 4.6%. The recent uptick in global oil prices, driven by renewed tensions in the Middle East, may slow the pace of disinflation in the second half of 2025, particularly through higher energy and transport costs. Scope therefore forecasts inflation to average around 4.0% in 2025, slightly above earlier projections but still broadly consistent with the central bank’s medium-term target.

Modest public debt. Serbia’s public debt remains moderate by regional and emerging market standards, with the debt-to-GDP ratio declining to 44.5% in 2024 from 45.7% in 2023. Scope expects the debt ratio to remain around 45.0% in 2025 and gradually decline to 43.9% by 2030. This trajectory reflects modest primary deficits and interest costs, and solid real GDP growth averaging 4.0% over 2027 to 2030. Fiscal deficits are projected to stay slightly below 3% of GDP, supported by IMF programme coordination. The debt profile is favourable, with a high share of fixed-rate instruments, extended maturities, and stable financing from institutional and multilateral partners. Scope forecasts net interest payments to remain contained, decreasing from 5.1% of revenues in 2025 to 4.0% by 2030. These factors contribute to a stable debt outlook. Continued consolidation and improved expenditure quality remain key to sustaining debt reduction and building fiscal buffers.

Stronger external position. Foreign exchange reserves remain at prudent levels, standing at USD 26.1bn in April 2025, compared to USD 12.4bn in April 2022 (excluding gold). External debt remains elevated, estimated at around 62 % of GDP in 2024, though it has declined from 67.2% in 2023. The structure of public external debt is favourable, with long maturities, fixed-rate obligations, and a large share held by multilateral creditors, while the well-capitalised, foreign-owned banking sector poses limited contingent liability risks. These improvements support a more stable external financing profile but are offset by Serbia’s high external leverage and reliance on foreign capital, as reflected in a negative net international investment position of around -64% of GDP at end-2024. Combined with political uncertainty and slow reform momentum, this may weigh on the medium-term sustainability of Serbia’s external position.

Finally, Serbia’s external position remains vulnerable, with a wide current account deficit expected at around 5.5% of GDP in 2025–2026, primarily driven by elevated import needs linked to the country’s public and investment agenda. The deficit is largely financed by resilient FDI inflows and is projected to narrow gradually from 2027 onward. This outlook is subject to downside risk from weak external demand, rising trade protectionism, higher energy costs and elevated geopolitical tensions, which could weigh on exports and external financing conditions.

Rating-change drivers

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

Upside scenarios for the long-term ratings and Outlooks are if (individually or collectively):

1. Governance, political and/or sanctions risks were redressed, such as via tangible progress in the longer-run accession to the EU;
    
2. The external position further strengthened, for instance due to robust exports or increased net FDI inflows; and/or
    
3. Public debt-to-GDP were set on a firm downward path over the medium term.

Downside scenarios for the ratings and Outlooks are if (individually or collectively):

1. Governance, political or sanctions risks increased, affecting the quality and predictability of policymaking;
    
2. Serbia’s external vulnerabilities intensified, causing pressure on reserve adequacy; and/or
    
3. There was a sustained rise in the public debt-to-GDP ratio over the medium term.

Sovereign Quantitative Model (SQM) and Qualitative Scorecard (QS)

Scope’s SQM, which assesses core sovereign credit fundamentals, signals a first indicative credit rating of ‘bbb’ for Serbia, which was approved by the rating committee. Under Scope’s methodology, the indicative rating receives no positive adjustment from the methodological reserve-currency adjustment and a one-notch negative adjustment from the methodological political-risk quantitative adjustment. On this basis, a final SQM quantitative rating of ‘bbb-’ is reviewed by the Qualitative Scorecard (QS) and can be changed by up to three notches depending on the size of Serbia’s qualitative credit strengths or weaknesses compared against a peer group of sovereign states.

Scope identified the following QS relative credit weaknesses for Serbia: i) Resilience to short-term shocks; ii) financial imbalances; and iii) governance factors. Relative credit strengths were identified: i) growth potential and outlook. On aggregate, the QS generates a further one-notch negative adjustment affecting Serbia’s credit rating, resulting in the final BB+ long-term ratings. A rating committee has discussed and confirmed these results.

A rating committee has discussed and confirmed these results.

Factoring of environment, social and governance (ESG)

Scope explicitly factors in ESG sustainability issues during the ratings process through the sovereign rating methodology’s stand-alone ESG sovereign risk pillar, having a significant 25% weighting under the quantitative model (SQM) and 20% weighting under the analyst-driven Qualitative Scorecard.

Serbia’s environmental profile is assessed as neutral. While the country faces legacy challenges from its coal-dependent energy system, overall per capita emissions remain moderate relative to regional peers. Serbia has taken initial steps toward climate alignment, including the development of a National Energy and Climate Plan. However, progress remains limited, with coal still accounting for a large share of electricity generation and modest investment in renewable energy sources to date. Environmental spending needs, such as for climate adaptation, air quality, and energy efficiency, are likely to rise. However, constrained fiscal space and institutional bottlenecks continue to limit the pace of green investment.

Serbia’s social profile is also assessed as neutral. The country faces demographic pressures due to a shrinking and ageing population, driven in part by sustained net emigration. These trends weigh on long-term growth and fiscal sustainability. At the same time, Serbia has made gradual improvements in education, healthcare, and poverty reduction over the past decade. Labour force participation has increased moderately, though structural challenges remain, particularly for youth and women. Social stability has generally been maintained, supported by moderate levels of income inequality and targeted social programmes. However, limited fiscal flexibility restricts the government’s ability to address social investment gaps.

Serbia’s governance profile is assessed as weak. Serbia consistently underperforms on World Bank Worldwide Governance Indicators (WGIs), such as in rule of law, control of corruption, and government effectiveness, relative to regional peers and EU candidates. While EU accession remains a policy objective, the pace of legislative and institutional reform has slowed. Only a small number of accession negotiation chapters have been provisionally closed, underscoring the challenges of aligning governance standards with EU expectations. Recent political developments, including large-scale protests, opposition boycotts, and concerns over media freedom and judicial independence, highlight persistent institutional vulnerabilities and reduce policy predictability. These factors underpin Scope’s weak governance assessment.

Rating Committee
The main points discussed by the rating committee were: i) domestic economic risk; ii) public finance risk; iii) external economic risk; iv) financial stability risk; v) ESG-related risk; and vi) rating peers.

Methodology
The methodology used for these Credit Ratings and/or Outlooks, (Sovereign Rating Methodology, 27 January 2025), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings and/or Outlooks is (Sovereign Quantitative Model Version 4.0), available in Scope Ratings’ list of models, published under https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With Rated Entity or Related Third Party participation    NO
With access to internal documents                                 NO
With access to management                                          NO
The following substantially material sources of information were used to prepare the Credit Ratings: public domain.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings and/or Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed.
Lead analyst: Jakob Suwalski, Executive Director
Person responsible for approval of the Credit Ratings: Alvise Lennkh-Yunus, Managing Director
The Credit Ratings/Outlooks were first released by Scope Ratings on 3 June 2022. The Credit Ratings/Outlooks were last updated on 26 July 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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