SERBIA

Following the collapse of the former Yugoslavia, Serbia and Montenegro formed the Federal Republic of Yugoslavia from 1992 to 2003. In 2003, the new Republic was reconstituted as the State Union of Serbia and Montenegro until 2006 when the referendum for the independence of Montenegro put an end to the confederation and created two separate countries. The 2006 Constitution defines Serbia (Republika Srbija) as a unitary and independent Republic (Article 4). The president of the Republic is the head of state and the government is led by a prime minister proposed to the parliament (national assembly) by the president of the republic.

Local self-government autonomy is enshrined in the country’s 2006 Constitution. According to Article 12, the “State power is restricted by the right of citizens to provincial autonomy and local self-government”. Part VII of the Constitution is entirely devoted to territorial organisation (Articles 176-193). In addition to the Constitution, Serbia adopted other legal texts with the aim of re-organising the intergovernmental system in the aftermath of the dissolution of the Federation of Serbia and Montenegro. The territorial (re-)organisation took shape in 2007 with Law no. 129/2007 on Territorial Organisation and the Law on Local Self-Government, defining both the responsibilities and rights of local authorities. The 2007 Law on Local Government Finance (amended in 2012 and 2016) includes regulatory provisions on the financing of local self-government units. In 2009, the Statute of the Autonomous Province of Vojvodina was adopted in accordance with article 182 of the Constitution. The 2009 Law on Establishing Competences of the Autonomous Province of Vojvodina transferred competences from the central government to the province.

As of 2014, multiple reforms and strategic documents have been implemented in order to modernise all levels of public administration. This process has been carried out in parallel with the Serbia’s EU accession process, which requires higher standards from the central and local administrations. In 2014, a Public Administration Reform (PAR) Strategy was adopted, which built on previous public sector reform strategies and aimed at improving the state of public administration. The strategy included measures to clarify the division of responsibilities between different levels of government and identified weaknesses to be addressed, such as the financing needs of local authorities. The Law on Employees in the Autonomous Provinces and Local Self-Government Units was adopted in 2016 and aimed at ensuring the professionalisation of the local and provincial civil service by regulating the rights and duties of civil servants in the lower-tier governments. In 2019, the Rulebook on Guidelines of Good Practice of Public Participation in the Preparation of Draft Laws, Other Regulations and Acts was adopted in order to increase active participation of citizens in the decision-making process by defining general principles and guidelines, in particular for municipalities, which since the Law on Amendments to the Law on Local Self-Government, have the obligation to consult citizens on the segment of the budget relating to investments. Finally, during the year 2020-2021, the government transitioned from the original strategic framework of the PAR to a new one, aimed at modernising all levels of government and providing services in a more efficient and transparent manner.

TERRITORIAL ORGANISATION
	MUNICIPAL LEVEL	INTERMEDIATE LEVEL	REGIONAL LEVEL	TOTAL NUMBER OF SNGs
	121 municipalities (opstina) 23 cities (grad) and the city of Belgrade		1 autonomous province (Pokrajine Vojvodina)
	Average municipal size: 47 643 inh.
Nber	145		1	146

OVERALL DESCRIPTION: Serbia has a two-tier government structure at the subnational level. The current territorial organisation (division of the territory in cities and municipalities) was mostly set during the 1960s. According to the 2014 amended Law on Territorial Organisation of the Republic of Serbia, the territory is subdivided into municipalities, cities, the city of Belgrade as a territorial unit (special status) and the autonomous province of Vojvodina.

For administrative reasons, municipalities and cities are gathered into larger entities known as districts. The districts are not mentioned by the Law on Territorial Organisation but, in a decree of January 29 1992, the central government defines them as "regional centers of state authority". Each district has an administrative center, which is the largest city or municipality in the area. In addition to the districts, Serbia is subdivided in four statistical regions: Belgrade region, Vojvodina region (whose territory coincides with the autonomous province of Vojvodina), Sumadija and Western Serbia region, and Eastern and Southern Serbia region.

REGIONAL LEVEL: The competences of the autonomous province are regulated by the Constitution. The province of Vojvodina is further regulated by the Statute of the Autonomous Province and the Law on the Competences of the Autonomous Province. Art. 4 of the latter law stipulates that the territory of Vojvodina consists of local self-government units. The city of Novi is established as the administrative centre and the seat of the authorities of the autonomous province. The province of Vojvodina is composed by two bodies: (i) a deliberative body (the assembly), constituted of deputies elected by direct universal suffrage, chaired by the president, which implements programmes related to economic, regional and social development and adopts the provincial budget; and (ii) an executive body (the provincial government), composed of a president, vice-presidents and members, which is accountable to the assembly. The autonomous province of Vojvodina has 1.8 million inhabitants.

MUNICIPAL LEVEL: The municipal tier is composed of 121 municipalities (opstina), 23 cities (grad) and the city of Belgrade, which are themselves divided into wards (mesna zajednica), which exists in all cities, and boroughs (gradska opština), which cities are not obliged to have. In addition, Serbia comprises 6 158 rural settlements and 193 urban settlements. Municipalities and cities are quite large by international standards: around 48 000 inhabitants on average to be compared to 10 250 inhabitants in the OECD and 5 960 in the EU.

Each municipality/city has its own assembly (elected every four years via local elections, the last being held in June 2020), a municipal president (mayor for cities) and a budget. Municipalities must meet a minimum threshold of 10 000 inhabitants, although, on an exceptional basis, a municipality with a smaller population can be established for economic, geographical or historical reasons. Cities are territorial units determined by law and usually have more than 100 000 inhabitants, although there are also exceptions. Despite many differences among them (e.g. geographic and demographic sizes), all municipalities and cities, except for the city of Belgrade, share similar competences, governing bodies and positions within the political system. The additional right of establishing municipal police is granted to the cities. According to the Law on Local Self-Government, local government units can cooperate in order to achieve common goals, plans and development programs.

The capital city of Belgrade has a special status and is regulated by the Law on the Capital City and the Statute of the City of Belgrade. The executive body of the capital city is directly elected by the city assembly, which is composed of 110 councillors. The city of Belgrade carries the competences assigned to all municipalities. In addition, the capital city is in charge of water management, state roads, fire prevention and inspection controls in relation to city planning. Belgrade is further divided into 17 city municipalities.

HORIZONTAL COOPERATION: The Law on the Competences of the Autonomous Province stipulates that the province shall cooperate with other bodies of the Republic of Serbia and other bodies of subnational governments in the provision of public goods and services.

Part VII of the 2006 Constitution lists the competences (original powers) of the autonomous province and local self-government units and clarifies that additional functions may be delegated.

The autonomous province competences include matters of provincial interest in the areas of economic affairs and transports, environmental protection, education, culture and recreation, health care and social welfare.

The exact competences of the municipalities are listed in the Constitution (Art. 190) and in different acts, such as the Law on Local Self-Government and other sectoral laws. They cover a number of areas. Tasks are carried out with wider discretion of the local authorities provided that they fall within the legal boundaries of existing regulations. Some of these competences, such as primary and secondary education, as well as social care, are shared with the state, although staff wages, facilities and investment costs are taken out of budgets from municipal governments. Other shared competences include the management of local airports and the construction and maintenance of social housing centres for the youth. Local authorities have room for manoeuvre in the implementation of delegated tasks, although their actions are subject to scrutiny by central authorities. The city of Belgrade, with its capital city status, has 23 additional competences including water, fire protection, and road construction.

Main responsibility sectors and sub-sectors
SECTORS AND SUB-SECTORS	Regional level	Municipal level
1. General public services (administration )	Internal administration; Public information at the provincial level	Municipal administration (municipal police)
2. Public order and safety		Protection against natural and other disasters
3. Economic affairs / transports	Agriculture, forestry, hunting and fishery; Tourism and spas; Industry and craftsmanship; Roads, river and railway transport; Trade fairs and other economic events.	Construction and maintenance of local roads and other municipal facilities; Local public transport; Local tourism; Craftsmanship; Catering and commerce; Improvement and use of agricultural land.
4. Environment protection	Environmental protection	Environmental protection
5. Housing and community amenities	Urban planning and development (shared); Water economy	Regulation of urban construction sites and business premises; Social housing for the youth (shared)
6. Health	Health resorts; Healthcare	Primary Healthcare
7. Culture & Recreation	Sport and culture (shared)	Protection of municipal cultural heritage; Sport and culture (shared)
8. Education	Primary and secondary education (shared)	Primary and secondary education (shared)
9. Social Welfare	Social welfare	Social welfare; Child welfare

Scope of fiscal data: Municipalities, cities and the Autonomous Province Vojvodina.

Other

Availability of fiscal data: Medium

Quality/reliability of fiscal data: Medium

GENERAL INTRODUCTION: Part VII of the 2006 Constitution includes several provisions related to the funding of the autonomous province and municipalities. Public finance of subnational governments in Serbia is further regulated by the law on local self-government finance of 2006, which was revised in 2012 and 2016. The new law aims at rationalising transfers and the revenue-sharing mechanism and providing incentives to subnational governments to raise their own revenues. Consultation mechanisms on fiscal matters, in particular related to central government funding, are well developed, taking place in particular through the Intergovernmental Finance Commission.

On 26 November 2020, the Serbian Parliament adopted a series of amendments to the Law on Tax Procedure and Tax Administration and the Law on Property Taxes. Most of the amendments entered into force on 1 January 2021, while certain provisions came into effect on 1 January 2022 (see below).

Subnational government expenditure by economic classification
	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure	1999	10.3%	19.0%	100%
Inc. current expenditure	1823	9.4%	19.3%	91.2%
Compensation of employees	774	4.0%	36.4%	38.7%
Intermediate consumption	509	2.6%	34.3%	25.5%
Social expenditure	259	1.3%	6.5%	12.9%
Subsidies and current transfers	275	1.4%	18.4%	13.8%
Financial charges	6	0.0%	1.6%	0.3%
Others	0	0.0%	-	0.0%
Incl. capital expenditure	176	0.9%	16.3%	8.8%
Capital transfers	11	0.1%	18.0%	0.60%
Direct investment (or GFCF)	165	0.9%	16.1%	8.3%

EXPENDITURE: In 2020, subnational government expenditure accounted for 10.3% of GDP and 19% of public expenditure, below the average of OECD unitary countries (12.7% of GDP and 27.5% of public expenditure in 2020). Staff expenditure remains the main item of expenditure, representing 35.4% of total public staff expenditure and 38.7% of total subnational government spending in 2020. The Law on Employees in the Autonomous Provinces and Local Self-Government Units adopted in 2016 aims at ensuring the professionalisation of the local and provincial civil service by regulating the rights and duties of civil servants at the lower-tier governments. The share of spending undertaken by municipalities has increased over the years, reflecting transfers of competences to them. The city of Belgrade in itself accounts for close to 35% of total subnational government expenditure.

DIRECT INVESTMENT: With the bulk of subnational government expenditure allocated to current expenditure, there is little room for investment (8.3%). Subnational government investment represented 16.1% of total public investment in 2020, well below the average for OECD unitary countries (48.9%) and EU27 (54.4%) in 2020. As a percentage of GDP, local investment spending has remained unchanged in recent years, accounting for 0.9% of GDP in 2016 and in 2020.

Since 2011, Serbia’s Law on Public-Private Partnership and Concessions encourages local governments to attract private funds in order to receive funding from the central budget, especially with respect to infrastructure investment (roads, schools, waterworks, landfills, etc.). The main purpose of this law is to involve the private sector in these investments to reduce fiscal pressures on local budgets, to accelerate investment in infrastructure and to improve public services while reducing their costs. Between 2017 and 2020, seven investment projects of around USD 2.4 billion have been financed through PPP mechanisms, in areas related to transportation, electricity generation and waste treatment.

ⓘ No detailed data available for this country

No data are available.

Subnational government revenue by category
	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total revenue	2023	10.5%	22.1%	100%
Tax revenue	250	1.3%	5.2%	12.4%
Grants and subsidies	1585	8.2%	-	78.3%
Tariffs and fees	150	0.8%	-	7.4%
Income from assets	38	0.2%	-	1.9%
Other revenues	0	0.0%	-	0.0%

Note: “transfers not elsewhere classified” have been reclassified as “grants and subsidies” rather than “other revenue”.

OVERALL DESCRIPTION: According to Art. 188 of the Constitution, local governments must be financed through direct revenues, the budget of the Republic of Serbia and the budget of the autonomous province of Vojvodina (when the latter delegates the performance of its competences to other local government units within the Republic and in accord with the Assembly of Vojvodina). Revenues of subnational governments include taxes (own-source and shared), user charges and fees and grants from the central government.

In 2020, subnational government revenue represented 10.5% of GDP and 22.1% of public revenue, below the OECD average for unitary countries (12.7% and 27.5% respectively) and the EU27 average (18.3% and 34.3% respectively). Tax revenue accounted for 12.4% of subnational revenue in 2020, while grants represented 78.3% of subnational revenue. It is important to note that before the 2008 reform of the SNA, implemented in 2014, revenue coming from the sharing of national taxes (e.g. the personal income tax, PIT) were considered as tax revenue, while they have been considered as grants from the central government since the reform, leading to a strong decline of the share of tax revenue in subnational revenue.

TAX REVENUE: Since the 2008 reform of the SNA, the share of shared taxes is negligible as the PIT was reclassified as transfers. The main components of local taxation are the property tax, the property transfer tax and the tax on inheritance and donations. The tax reform of November 2020 specifies the rules for the average price of real estate by municipality and city, which is used to determine the property tax base. The property tax rate, up to the amounts prescribed by law, shall be determined by municipalities and cities. The property tax, the property transfer tax and the tax on inheritance and donations represent 62.8% of total subnational government tax revenue and 7.8% of subnational government total revenue in 2020.

GRANTS AND SUBSIDIES: Grants and subsidies to local governments are regulated by the law on local government finance. They consist of both non-categorical and categorical (or earmarked/block) transfers. Categorical grants are funds for specific tasks and expenditure lines from local government budgets.

Most of the revenue from grants comes from the sharing of the PIT receipts. Its sharing is regulated by the 2007 Law on Local Government Finance (amended in 2016). The PIT is levied by the central government on, among others things, gross wages, payroll tax and on income coming from the self-employed and farmers.

Non-categorical transfers include an equalisation grant to compensate for the disparities between local governments (1.7% of annual GDP), a compensation transfer, an unconditional grant and a solidarity transfer, all contributing to horizontal equalisation. The equalisation grant is allocated to municipalities and cities in which the population's average income per capita is below the national per capita income as calculated by the relevant authorities. The equalisation grant is equal to a percentage of the difference between local governments’ per capita revenue from shared taxes and a percentage of the national average multiplied by their population. The unconditional grant to individual local government is based on a formula including metrics related to the population size, territory, number of elementary and secondary school buildings, number of children attending preschool and number of preschool buildings. In addition, the least developed local authorities receive a larger share of the general transfer, thereby enhancing financial equalisation and correcting for regional disparities. The solidarity transfer is equal to 10% of the wage taxes of the city of Belgrade given that approximately 32% of total subnational government revenues are collected in Belgrade and is transferred to all municipalities except the city of Belgrade. The allocation is based on a coefficient for development that divides municipalities into four groups.

The autonomous province of Vojvodina receives almost two-thirds of its revenue from the central government, due to the constitutional provision stating that the province should receive at least 7% of the state budget (Art. 84). A settlement between the province and the central government on the calculation method is to be codified in a Law on Financing the Autonomous Province of Vojvodina. The Constitution also states that three-sevenths of the budget of the autonomous province of Vojvodina shall be used for financing capital expenditure.

OTHER REVENUE: Municipalities receive proceeds from charges and fees on urban land use, business licenses and land development fees, especially in the capital. In 2020, other revenues, which include tariffs and fees, represented 9.3% of total subnational government revenue and 1% of GDP.

Subnational government fiscal rules and debt
2020	Dollars PPP / inh.	% GDP	% general government debt	% SNG debt	% SNG financial debt
Total outstanding debt	230	1.2%	2.0%	100.0%	-
Financial debt	-	-	-	-	-
Currency and deposits	-	-	-	-	-
Bonds / debt securities	-	-	-	-	-
Loans	-	-	-	-	-
Insurance pensions	-	-	-	-	-
Other accounts payable	-	-	-	-	-

FISCAL RULES: According to Art. 27 of the amended Budget Law (2009), local government deficits may only occur as a result of public investments and are a constituent part of the consolidated general state deficit. The local government deficit cannot exceed 10% of the local government revenue in a given fiscal year. Local executives may submit a request to the Ministry for the approval of said percentage only if the fiscal deficit is a result of public investment. If the local government exceeds the deficit limit in a given year without the approval of the Ministry, the Minister can legally block the transfer of funds from the public budget to the local government budget, including the transfer of grants, the relative share of personal income and corporate income tax.

Serbia's Fiscal Strategy for 2022-2024 claims that the stability of public finances and a sustainable fiscal framework will be contributed to by the planned amendments to the Budget System Law, which will, among other things, redesign a set of fiscal rules and define special measures and consequences in case of non-compliance.

DEBT: Under the Public Debt Law, subnational governments are allowed to borrow if they obtain the approval of central government authorities. Loans and bonds can be contracted both in the domestic and foreign markets. While local governments can borrow to finance liquidity resulting from a fiscal imbalance, liquidity borrowing should not exceed 5% of actual recurring revenues from the previous year. Moreover, the total borrowed amount must be repaid before the end of the budget year and it cannot be refinanced or renewed at the end of the budget year. Local governments cannot borrow on the long term, except for the financing or refinancing of capital investments that are included in an approved local government budget. Outstanding long-term borrowing for capital investment expenditure cannot be higher than 50% of the revenues that were actually collected in the previous year. The amount of principal and interest on all outstanding long-term debt due in a future fiscal year cannot exceed 15% of revenues actually generated by local governments in the previous year.

In 2020, subnational government debt amounted to 1.2% of GDP and 2% of public debt. In addition, 57% of total local government debt was issued in foreign markets and close to 60% of the total debt of subnational governments is related to the city of Belgrade.

TERRITORIAL MANAGEMENT OF THE CRISIS: Serbia declared a national state of emergency on March 15 2020 and adopted containment measures. The crisis was mainly managed by the central government, which was in charge of setting the strategy and plans in several areas (health, social protection, education, etc.). Under Article 5 of the Act on Disaster Risk Reduction and Emergency Management, local governments have the ability to proclaim an emergency situation, in times of crisis, and thus to enact public health measures. However, their role was limited to implement national level public health and economic measures. Success in implementing the strategy depended on the human and financial capacities of local governments. There was a significant variation in the overall institutional capacity to respond to the crisis at the local level.

Local civil society organisations also played an important role in humanitarian work, providing support to vulnerable groups, providing access to relevant and timely information and providing free legal support and consultations. Associations, networks, and businesses stepped in by providing support and donations to communities and local institutions.

EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: The central government set a first package of fiscal measures amounted to RSD 390 billon (approx. USD 3.6 billion; 7% of GDP). It included the reduction/deferral of taxes, spending increases (especially in healthcare) and the use of direct transfers to the private sector. Tax reduction measures included a deferment of CIT advance payment during the second quarter of 2020 (equivalent to USD 195 million). Regarding spending increases, the government granted a 10% wage increase for public healthcare sector (equivalent to USD 120 million) and increased healthcare spending by RSD 60 billion (USD 550 million).

A second round of measures was adopted in July 2020, including wage subsidies and deferment of labour taxes and social security contributions for all private companies for an additional month. In August 2020, the authorities announced one-off fiscal support to help hotels in cities, with a cost of about 0.02% of GDP and in November, the authorities announced that public-sector health workers would receive a one-off assistance of RSD 10 000 (approx. USD 90) by the end of the year.

IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: The COVID-19 crisis had a general impact on all revenue and expenditure items of subnational governments. Between 2019 and 2020, subnational government revenue fell by 8%, with own revenues (tariffs and fees, revenues from assets) being the most affected with a registered drop of 21%. Tax revenues also fell between 2019 and 2020 (by 3%), while grants and subsidies fell by 7% (mostly capital grants).

Subnational government expenditure registered an overall decrease of 10% between 2019 and 2020. Except for current social spending (+17%), all spending components decreased in 2020. Current spending registered a drop of 9 %, with intermediate consumption (-15%), transfers and subsidies (-30%) and financial charges (-15%) being the most affected components. Capital spending fell by 17%, driven by a 7% drop in direct investment (84% of capital spending) and a significant drop in capital transfers (-66%).

ECONOMIC AND SOCIAL STIMULUS PLANS: In April 2021, the central government established a supplementary budget with new support measures to the economy, mostly in the form of subsidies and direct transfers. The total estimated cost amounted to 2.5% of GDP. It also included additional healthcare spending and increased public investment (2% of GDP), mostly in infrastructure, environmental protection, and defence.