OVERVIEW OF FISCAL DECENTRALISATION  

The organisation of Serbia’s government is based on three levels: the central government, two autonomous provinces and the local self-government units (the City of Belgrade, 23 cities and 150 municipalities). 

Legal acts governing fiscal decentralisation

The recognition and the scope of local self-governance are established in the Serbian Constitution of 2006. The most important legal act concerning fiscal decentralisation, the responsibilities of local self-government and the main financial relations between the central government and the local self-government units is the Law on Local Self-government Finance (LSG law) of 2006. 

Qualifying fiscal decentralisation

The most recent figures available report that, in 2009, local government’s revenues accounted for 14% of total public revenues, or 5.6% of Serbian GDP; both of these values are below the EU average.

The results obtained by implementing the fiscal decentralisation strategy begun in 2006 have been partially offset by the effects of the financial crisis on Serbian public finances and by the measures that the Serbian government (following the recommendations of the IMF) has had to implement. The increase in the national public debt forced a radical reduction of public expenditures and some of the cornerstone measures of the LSG law were suspended for three years. In the second half of 2009, the unconditional grant to local governments (which, according to the LSG law, should have amounted to 1.7% of GDP) was reduced of 36.8% and transfers were frozen at the same nominal level of 2009.

In 2009, the composition of Serbian local governments’ revenues was 41% own revenues, 40% shared taxes, 18% unconditional grants from the central government, and 1% conditional grants.  More specifically, the own revenues were composed of land development fees and impact taxes (56%), communal fees and taxes (18%), property taxes (14%) and asset revenues for (12%).

The composition of local governments’ expenditures sees the majority of spending focused on investments (including capital subsidies to public companies, 29%) and expenditures for goods and services accounts (24%), while transfers to individuals account for 19%. 

Deficit, debt at sub-national levels and borrowing capacity

Serbian municipal debt has grown steadily over the past years, reaching 42% of total local government revenue at the end of 2011, up from 31% in 2008.

According to forecasts for 2012, the capital spending of Serbian municipalities will remain at its 2011 level of 23% of total expenditures. Local government debt is expected to fall to 37% of total revenue in 2013.

A key innovation in the legal framework for borrowing by local governments has been the introduction of a municipal bond market (through important amendments to the Law on Public Debt) during the second half of 2011. Before the introduction of municipal bonds, local borrowing was restricted to bank loans. The city of Novi Sad was the first city to issue municipal bonds to finance capital expenditures, issuing a 35 million euro bond with a maturity of 12 years.