III.1.b Investment Management
Good investment management is central to the functioning of a market economy because it determines how development priorities are translated into fiscally binding investment decisions. It shapes whether public capital is allocated toward projects that support productivity, territorial cohesion, and private sector activity, or toward investments whose economic and developmental rationale is weak or insufficiently articulated.
The Role of Public Investment
In countries at Serbia’s level of development, public investment can play an important role in areas where private investment is constrained by risk, scale, or long-time horizons, and may at times pursue objectives that extend beyond narrowly defined economic returns, such as:
- Connectivity
- Inclusion
- Regional development
This role, however, depends on credible processes of project selection and appraisal that clarify the intended economic and developmental objectives of individual investments and the channels through which they are expected to deliver results.
Where such processes are weak or bypassed, it becomes difficult to distinguish between investments that are justified by broader developmental considerations and those that reflect discretionary allocation, increasing the risk that scarce fiscal resources are committed to projects with low or unclear overall value.
Beyond these direct effects, weak investment management reduces predictability for firms, local governments, and other economic actors, complicating coordinated planning, investment, and implementation across the economy.
The Reform Agenda Approach
Against this background, the Reform Agenda adopts a pragmatic and sequenced approach to strengthening public investment management rather than attempting a comprehensive overhaul of the development planning system.
Establishing a fully-fledged planning framework in a single step would require deep and time-consuming institutional change, as well as a significant shift in administrative practice. Instead, the Agenda concentrates on practical, high-impact elements of investment management that most directly affect allocation quality:
- Clearer project selection criteria
- Publication of investment pipelines
- Stronger appraisal and monitoring
- Improved disclosure of project costs, timelines, and results
These measures are selective by design, but they target precisely those stages of the investment cycle where governance weaknesses translate most directly into fiscal risks and uncertain growth outcomes, and where early improvements can generate discipline across the broader investment system.
Reform Timeline
The Reform Agenda sets out a staged timetable for strengthening public investment management, with key reforms extending through to the end of 2027:
| Deadline | Milestone |
|---|---|
| December 2026 | Adopt policy document and time-bound action plan to improve public investment management, together with arrangements for monitoring implementation (in consultation with the European Commission) |
| December 2027 | Upgraded legal framework aligned with international standards, establishing a unified and transparent mechanism for prioritizing all public investments, regardless of their type or source of financing |
While the direction of reform is appropriate, the proposed timelines imply that a substantial share of major projects associated with the current capital spending cycle—including those linked to EXPO 2027—will already be contracted or underway by the time the new framework becomes operational. This limits the extent to which the reforms can influence the allocation and quality of the largest near-term investment commitments and places greater weight on how existing processes are applied in practice during the current investment surge.
Serbia’s Public Investment Surge
Serbia’s recent surge in public investment has significantly raised the stakes for effective investment management. Following the pandemic-related downturn, capital spending increased sharply as public investment was used to support the recovery and mitigate subsequent external shocks, including the energy price surge in 2022.
Rather than returning to pre-crisis levels as these pressures eased, public investment has remained elevated, reaching a peak of around 7.3% of GDP in 2024 according to World Bank estimates—one of the highest levels in Serbia’s recent history.
This sustained expansion reflects an ambition to address infrastructure gaps and support growth. At the same time, it increases the fiscal and economic costs of weak project selection, coordination, and oversight, as a larger share of public resources is committed through multi-year investment decisions whose effects will persist well beyond the current budget cycle.
Governance Challenges
These pressures are most evident in the treatment of large and high-profile investment projects. Although Serbia has strengthened the formal legal framework for public investment management in recent years, World Bank assessments indicate that implementation remains partial and that significant segments of the investment portfolio fall outside its effective coverage.
A substantial share of major projects continues to be prepared and executed through exceptional procedures, including:
- Projects designated as being of special importance
- Projects financed through specific bilateral arrangements
- Several investments linked to EXPO 2027
These arrangements often bypass standard appraisal, procurement, and prioritization processes, weakening transparency and comparability across investments. The Fiscal Council has similarly pointed to limited ex ante justification and the growing reliance on special legal regimes for large infrastructure projects.
In the context of elevated and sustained capital outlays, such practices increase risks to value for money and weaken accountability for the use of public resources.
Investment Efficiency Gap
The economic consequences of these governance gaps are visible in public investment efficiency outcomes:
| Metric | Serbia | Regional Average | Aspirational Peers |
|---|---|---|---|
| Public Investment Efficiency | 65.6% | ~58% | ~70% |
Analysis by the Fiscal Council is consistent with this assessment, noting that while the recent increase in public investment has supported growth, realized economic returns depend critically on the quality of project selection, preparation, and implementation.
In the context of the current investment surge, weaknesses in investment management therefore carry higher fiscal and opportunity costs, as a larger volume of public resources is committed through long-lived investment decisions.
Strengthening public investment management is thus not only a long-term structural objective, but also a near-term priority to ensure that elevated capital spending supports productivity, competitiveness, and predictable conditions for private investment, rather than locking in a series of low-impact commitments.
Proposed Monitoring Instrument: IIES
A useful complement to the current reform framework would be the introduction of an Investment Integrity and Execution Score (IIES) as a focused monitoring instrument for public investment execution.
The IIES would operate as a dual metric designed to link investment planning with delivery:
Component 1: Planning Variance
This component would track deviations between planned and executed capital spending for large projects (e.g., those exceeding €10 million), distinguishing between:
- Under-execution due to implementation slippages
- Over-execution arising from cost overruns or mid-year reallocations
This distinction provides a clear indication of whether capital spending follows approved plans or is subsequently altered through ad hoc adjustments, with implications for predictability and fiscal discipline.
Component 2: PIM System Coverage
This component would assess the effective reach of the public investment management framework by measuring the share of total capital spending that is formally appraised and monitored within the official PIM system.
This could be operationalized by cross-referencing Treasury execution data with the PIMIS project register, allowing for the systematic identification of capital spending implemented outside standard procedures.
Recent World Bank assessments note that, while Serbia has established a formal PIM framework and begun implementation, its effective coverage remains limited, with several large and high-profile projects still executed through exceptional arrangements.
Implementation
To support this objective, the IIES could be institutionalized through the introduction of a Unique PIM Identifier for each capital project in the budget, enabling consistent tracking over time and establishing a routine and credible benchmark for investment governance.
Civil Society Monitoring Initiative
In parallel, CEVES has begun developing analytical capacity to monitor the execution of large public investment projects. This work reflects the fact that key reforms to public investment management are expected to take effect only toward the end of 2027, while a substantial share of major investment projects—including those linked to EXPO 2027—will be contracted or completed before then.
Methodology
The initial focus is on capital projects exceeding €20 million as reported in the Republic of Serbia’s Fiscal Strategy and its subsequent revisions. By systematically comparing successive fiscal strategies and budget updates, this approach allows for the identification of:
- Implementation slippages
- Changes in projected timelines
- Increases in estimated costs over time
All based on official government disclosures.
Future Development
Building on this initial work, the intention is to develop a CEVES-led civil society monitoring platform that would bring together organizations with complementary expertise to track additional aspects of public investment and related public spending.
Such an initiative would not replace formal public investment management systems, but could function as a complementary mechanism during the current investment cycle, supporting greater transparency, consistency, and public understanding of how large investment commitments evolve and how taxpayer resources are ultimately allocated.