Part I: Public Investment
Public investment is central to long-term growth, yet its developmental impact in Serbia is weakened by gaps in effective public investment management coverage, particularly for the largest and most consequential projects. This is compounded by the absence of an upstream strategic anchor: neither a binding Development Plan nor a Public Investment Plan has been adopted, leaving major investments without a clear, ranked pipeline linked to medium-term priorities. Although the formal PIM framework has been upgraded, international and domestic assessments point to persistent reliance on exceptional regimes that reduce ex ante scrutiny, limit comparability across projects, and heighten the risk of cost overruns and delays. With public investment at record levels, around 7.3% of GDP in 2024, and an investment portfolio increasingly concentrated in large, multi-year commitments, priorities for the current cycle are to expand effective system coverage and strengthen execution discipline, supported by a small set of portfolio-level indicators.
Diagnosis
Public investment is a central driver of long-term economic development because it shapes productivity, connectivity, and the conditions for private investment. Because capital formation is long-lived and path-dependent, public investment decisions commit fiscal resources over extended periods and shape production structures, spatial development, and economic incentives in ways that are costly to reverse. As a result, the developmental impact of public investment depends not only on its volume, but on how effectively it is translated into durable and productive assets. This, in turn, depends on the strength of the public investment management (PIM) framework within the budget system, which determines how projects are selected, appraised, and executed against consistent standards. When PIM institutions are weak or bypassed, project selection becomes fragmented, ex ante justification erodes, and large fiscal commitments can be locked in without a credible assessment of economic value.
These considerations are especially relevant in Serbia, where public investment has remained consistently high in recent years, reaching its peak in 2024, with no evidence of a sustained slowdown. In 2024, public investment amounted to around 7.3% of GDP, the highest level recorded in Serbia. At the same time, the investment portfolio has shifted toward large, multi-year, and high-profile projects, including EXPO 2027-related investments, with long implementation horizons. As a result, a growing share of public resources is now locked into capital commitments whose fiscal, economic, and spatial effects will extend well beyond a single budget cycle, raising the stakes for disciplined project selection, credible appraisal, and effective oversight during the current investment cycle.
In practice, Serbia’s public investment management framework does not provide comprehensive coverage of the investment portfolio, and this is widely recognised by international and domestic oversight bodies, not only in EU reporting. World Bank assessments point to partial implementation and gaps in effective coverage, with a significant share of capital projects prepared and executed outside standard appraisal and prioritisation procedures. Similarly, SIGMA concludes that, although the administrative framework is largely in place, parallel political steering of major investments persists in practice, limiting effective gatekeeping and undermining the consistent application of PIM procedures. These weaknesses are most evident in large, complex, and time-sensitive projects implemented under lex specialis or bilateral and intergovernmental agreements, including several major investments associated with EXPO 2027. The Fiscal Council has likewise noted that exemptions from standard procedures weaken ex ante economic justification and limit fiscal oversight, with projects carrying the largest fiscal impact often those least integrated into a unified investment pipeline.
These coverage gaps weaken execution discipline and translate into higher implementation risk, including planning variance, cost escalation, and delayed delivery. World Bank estimates place Serbia’s public investment efficiency at around 65.6%, above the Western Balkan average of approximately 58%, but below levels observed in aspirational peers at around 70%. This efficiency gap reflects losses arising from deviations between planned and actual costs, timelines, and outputs rather than from insufficient spending. When large projects proceed outside standard appraisal, monitoring, and portfolio reporting arrangements, overruns, schedule extensions, and mid-course reallocations become harder to detect, compare, and discipline within the budget process. In an investment cycle dominated by large, multi-year projects, these weaknesses carry amplified fiscal and opportunity costs by locking resources into underperforming investments and constraining space for higher-return priorities.
In response to persistent weaknesses in how public investments are selected, appraised, and monitored, the Reform Agenda sets out a selective and sequenced approach to strengthening public investment management. It prioritizes improvements in project appraisal and selection, environmental and social sustainability, institutional capacity, transparency, and access to financing for public investments, including clearer selection criteria, publication of investment pipelines, stronger appraisal and monitoring practices, and better disclosure of project costs, timelines, and results. However, the EU Delegation’s assessment indicates that the binding constraint remains implementation rather than formal intent: it calls for policy reforms, institutional strengthening, capacity building, and effective implementation mechanisms and concludes that further reforms are needed precisely in the areas of appraisal and selection, sustainability, institutional capacities, transparency, and access to financing. This alignment between the Reform Agenda’s priorities and the EU Delegation’s continued criticism underscores the execution risk created by sequencing: the Agenda requires adoption of a dedicated policy framework and time-bound action plan by December 2026, followed by an upgraded legal framework aligned with international standards by December 2027 (Table 1), implying that improvements during the current investment cycle will depend primarily on how existing rules are applied in practice and whether they effectively cover the projects currently being prepared or contracted.
Table 1. Reform Agenda — Public Investment Management
| Reform Measure | Reform Indicator | Deadline | Baseline | Sources of Verification |
|---|---|---|---|---|
| A Policy Paper and an adjoining time-bound Action Plan for the improvement of public investment management, following consultations with the European Commission, has been adopted and their implementation started | Extent to which measures designed for public investment management are implemented | December 2026 | Decision on Amendments and Additions to the PFM RP 2023—2025 | Policy Paper and adjoining time-bound Action Plan adopted by the Government and information delivered to the EC |
| An improved legal framework for public investment management, which establishes a unified, comprehensive and transparent mechanism for prioritising all public investments regardless of type and source of financing, following consultations with the European Commission and in line with the Policy Paper and Action Plan, as well as with the best international standards, is adopted | Extent to which measures designed for public investment management are implemented | December 2027 | Decree on Capital Projects (Official Gazette of the RS, no. 79/2023) | Adopted legal acts published in the Official Gazette of the RS |
Source: Reform Agenda
European Commission reporting since 2020 further corroborates that these weaknesses are structural and persistent rather than transitional. Successive reports continue to note the absence of a unified and comprehensive system for capital investment planning and management, and to characterise the institutional framework as weak in practice because it allows extensive exceptions to standard rules. Serbia has introduced formal upgrades, most notably the 2019 Decree on Capital Projects Management and its replacement by the 2023 Decree, alongside the formalisation of PIMIS as the central monitoring tool. However, from 2023 onwards, assessments converge on the conclusion that Serbia has still not developed a genuine single investment pipeline, as large and strategically important projects continue to proceed under special regimes, including lex specialis and intergovernmental agreements, outside standard appraisal, prioritisation, and procurement procedures. The persistence of these findings suggests that progress has been concentrated in formal rule-setting, while implementation and system coverage, especially for the highest-value projects, remain the binding constraints.
These weaknesses are compounded by the absence of an upstream strategic framework to anchor public investment decisions. The Law on the Planning System (2018) envisaged a binding Development Plan as the highest-level strategic document, to be adopted by 2020, followed by a Public Investment Plan derived from it to translate strategic priorities into a ranked, costed, and time-bound investment pipeline. As of 2026, however, neither document has been adopted. In the absence of a binding strategic hierarchy, projects enter the investment cycle without systematic prioritization against medium-term development objectives, weakening ex ante discipline at the top of the process and enabling large projects to advance through ad hoc political initiatives, special legal regimes, or bilateral arrangements. As a result, downstream procurement and public investment management reforms operate without a stable strategic anchor, limiting comparability and value for money across the investment portfolio.
Indicators and Monitoring
A small set of indicators can strengthen accountability by linking monitoring to explicit objectives for the current investment cycle, without adding new instruments or reporting burdens.
First, system coverage should be monitored through the share of capital spending and contracting value implemented outside standard appraisal, prioritisation, and procurement procedures, including projects under lex specialis, intergovernmental agreements, and other exceptions. The monitoring objective is straightforward: the share implemented outside standard procedures should not increase and should decline over time, particularly for high-value projects.
Second, execution risk should be tracked through an Investment Integrity and Execution Score (IIES) combining two portfolio-level measures: Planning Variance, capturing deviations between planned and executed capital spending for large projects (above EUR 10 million), distinguishing delays from cost overruns or reallocations; and PIM System Coverage, measuring the share of capital spending formally appraised and monitored within the PIM framework. The objective is to reduce planning variance while expanding PIM coverage.
Third, a Unique Project Identifier for all capital projects in the budget would enable consistent tracking across fiscal strategies, budgets, and execution reports, providing the technical basis to monitor coverage, variance, and delivery outcomes across budget cycles. The objective is to ensure that all major capital projects can be traced end-to-end across documents and years, eliminating breaks in comparability and enabling systematic portfolio monitoring of cost and timeline change.
In parallel, interim analytical monitoring can bridge the period before reforms become binding. CEVES is tracking large capital projects (above EUR 20 million) through successive Fiscal Strategy and budget documents to identify changes in projected costs, timelines, and scope, providing an early-warning view of cost escalation and delays during the current investment cycle.
Policy Options
To ensure that ongoing reforms affect outcomes during the current investment cycle, priorities should focus on coverage, contestability, and execution monitoring rather than additional formal reforms.
- Introduce a minimum disclosure standard for exceptions. All projects implemented outside standard appraisal or procurement procedures should meet a basic, uniform disclosure requirement to allow monitoring of coverage and fiscal exposure.
- Expand PIM coverage before 2027. Interim measures should increase the share of capital spending subject to standard appraisal and monitoring, particularly for large projects contracted during the current cycle.
- Enable project tracking across budgets. A unique project identifier for all capital investments would allow systematic monitoring of planning variance, cost escalation, and delays across fiscal documents.
Part II: Procurement
Public procurement is the key interface between Serbia’s expanding public investment portfolio and market outcomes, since it determines whether public spending is allocated through merit-based competition or through preferential access. The Reform Agenda focuses mainly on transparency and integrity, particularly for projects implemented through intergovernmental agreements and for reducing legal space for derogations, but transparency alone is insufficient if contestability remains weak in high-value tenders. The binding constraints therefore lie in implementation and market design, including limited practical application and monitoring of lotting, persistently weak competitive pressure reflected in single-bid procedures, and the limited diagnostic value of aggregate SME indicators despite high SME shares in contract counts and value. For the current investment cycle, monitoring should prioritize a value-weighted measure of contestability, alongside practical steps to strengthen pre-tender market research and improve tender design where fiscal exposure and market-shaping effects are greatest.
Diagnosis
Public procurement is the main channel through which the investment pipeline described above is translated into contracts and market outcomes, determining who supplies the state, on what terms, and at what cost. When awards are not based on merit under open competition, procurement ceases to impose market discipline and instead rewards preferential access and rent-seeking. The immediate effects are higher prices and weaker service quality, while the medium-term effects include distorted incentives, greater market concentration, and weaker productivity growth. SMEs are particularly affected because they depend on predictable rules and contestable procedures rather than informal networks, so weaknesses in procurement integrity and competition reduce economic efficiency and weaken the resilience of the domestic private sector.
In the context of Serbia’s EU integration, alignment of public procurement with the EU acquis is a functional requirement for meeting the Union’s economic criteria rather than a purely formal compliance exercise. EU-aligned procurement frameworks strengthen transparency, non-discrimination, competitive tendering, and effective remedies, improving value for money and the credibility of the business environment. For this reason, public procurement is treated in the Reform Agenda as a cross-cutting enabler rather than a narrowly technical reform area. More effective procurement also supports the implementation of public investment and facilitates the absorption of EU-related funding by reducing delays, disputes, and distortions, while procurement design can be used strategically to advance broader objectives such as the green transition, innovation, and better access for SMEs through performance-based specifications and non-price criteria.
Within the Reform Agenda, public procurement is framed mainly through an integrity and anti-corruption lens, reflecting continued exposure to favouritism, particularly in projects implemented through intergovernmental agreements. Reform 6.2.1 presents Serbia’s framework as broadly aligned with the EU acquis but calls for further harmonization to modernize the system and raise efficiency, with an explicit focus on greater transparency. The reform is operationalized through two steps (Table 2): introducing a new publication obligation for intergovernmental-agreement projects, starting in December 2024 with a milestone by June 2025 (from a baseline of no general obligation and only partial disclosure), and lifting legal derogations from procurement rules by June 2027. These measures can strengthen formal transparency and reduce scope for exceptions, but they risk devolving into procedural compliance if disclosure remains fragmented across ministry websites and if high-value contracting, including EXPO 2027-related procurement, proceeds while standards remain weakly defined.
Table 2. Reform Agenda — Public Procurement
| Reform Step | Reform Indicator | Step Deadline | Baseline | Sources of Verification |
|---|---|---|---|---|
| The level of transparency regarding all projects contracted under intergovernmental agreements is increased by introducing project-specific information on the website of the ministry in charge of implementing the project on any completed, ongoing and new procurement contracts under intergovernmental agreements. All contracts under intergovernmental agreements will be published starting from December 2024. | Degree of transparency of intergovernmental agreements | June 2025 | There is no obligation to publish project-specific information on contracts under intergovernmental agreements, however some project-specific information on contracts under intergovernmental agreements are published | Websites of ministries in charge of project implementation — links to the projects of IGA in their competence for each ministry |
| All special and other laws/decrees introducing derogations from the public procurement legislation are lifted | Status of laws/decrees introducing derogations from PP legislation | June 2027 | Some laws/decrees introducing derogations from the public procurement legislation exist | Conclusions of the Government, Official Gazettes and links to the web sites of relevant ministries |
Source: Reform Agenda
Although the Reform Agenda prioritizes transparency, it places less emphasis on competition as an outcome of procurement design. Transparency is necessary for integrity, but it does not ensure efficient or inclusive markets if contestability is weak, since procedures can remain formally transparent while producing few bids, inflated prices, and weak incentives for innovation. A central design lever is lotting: dividing large contracts into smaller lots lowers entry barriers and can widen SME participation, whereas unjustified aggregation can exclude domestic firms irrespective of value for money. Serbia’s procurement law already requires contracting authorities to consider lotting and to justify non-lotting for contracts at or above EU thresholds, so the constraint lies in application rather than legal design. Assessment is further constrained by monitoring gaps: systematic statistics on lots are not publicly available and, because each lot is recorded as a separate contract, it is difficult to observe how often procedures are genuinely structured into multiple lots or whether multiple lots are routinely awarded to the same bidder. This prevents evidence-based assessment of whether procurement design expands competition in practice and is consistent with persistently weak competition signals, including a high share of single-bid procedures.
Official indicators provide only a partial view of market access and procurement quality. In 2024, SMEs accounted for more than three-quarters of awarded contracts and around 73% of total awarded value, but these aggregates do not capture contestability and concentration in high-value tenders or SME access to strategic contracts. Reporting on award criteria is also coarse, since it records only the use of criteria beyond price without distinguishing cases where such criteria are required or economically appropriate. This matters because Serbia already has most modern instruments in place, including life-cycle costing, price-quality awards, pre-tender market research, and performance-based specifications with environmental or social labels. Practice nonetheless points to weak market research, which undermines competitive tender design, credible lotting decisions, and effective use of quality-based criteria. The binding constraint is therefore implementation capacity and incentives rather than missing legal tools.
Indicators and Monitoring
We recommend introducing a single contestability indicator to track whether procurement delivers competitive, SME-accessible outcomes in high-value contracting.
Transparency measures should be complemented by a Procurement Market Contestability Index (PMCI) capturing competitive outcomes in practice rather than formal compliance alone. The PMCI should be a value-weighted indicator measuring the share of awarded procurement value that meets three conditions: (i) effective competition, defined as procedures with at least two valid bids; (ii) competition-enabling design, reflected in the use of lots or a published, evidence-based justification for non-lotting in large contracts; and (iii) market access at the top end, measured by SME participation in the highest-value tenders, for example the top decile by value. The objective is to track contestability where fiscal exposure and market-shaping effects are greatest. Value-weighting is necessary because competitive outcomes in small contracts do not offset concentration risks in high-value procurement. The index can be constructed from existing e-procurement data and monitored against a simple target: increasing the value share of procurement that is both competitive and entry-enabling.
Policy Options
To ensure that ongoing reforms affect outcomes during the current investment cycle, priorities should focus on coverage, contestability, and execution monitoring rather than additional formal reforms.
- Monitor contestability, not just transparency. Oversight should focus on value-weighted indicators of effective competition, including multi-bid rates, justified lotting in large contracts, and SME participation in high-value tenders.
- Strengthen pre-tender market research capacity. Establish a minimum standard for market sounding in large and complex tenders and provide practical support to contracting authorities so that lotting decisions and quality-based criteria are credible and defensible.