Serbia - Military Spending

In 2019, Serbia made headlines by overtaking NATO member Croatia as the Balkan region’s biggest military spender, spending $1.14bn, an increase of 43 percent from the previous year. in 2021 Serbia’s defence budget almost doubled from the 2018 figure of $700m to about $1.5bn. Serbian defence spending rose in 2021 after a decline over the course of 2020. Serbia overtook NATO member Croatia as the region's biggest military spender in 2019, according to the Stockholm International Peace Research Institute (SIPRI). That ranking was fueled by a 43 percent year-on-year hike in defense spending.

Russia, in particular, has sold air defenses like the Pantsir system and other military hardware to Belgrade, while China has supplied unmanned aerial vehicles (UAVs) like CN92-A combat drones. With much of the public's focus on ending an unprecedented health crisis and fostering economic recovery, populist President Aleksandar Vucic's Progressive Party (SNS) used its supermajority in the Serbian parliament in April 2021 to allocate an additional 40 percent, beyond what lawmakers had originally proposed, for defense spending (to about 1.2 billion euros or $1.45 billion).

Through 2029, growth in defence spending will probably decelerate, resulting in spending as a proportion of GDP dropping from 1.7% in 2020 to 1.3% by 2029. Serbia's defence market remains well developed, supported by a number of state-owned companies. The UAE, Saudi Arabia and the US are Serbia's main defence trade partners, while for imports, Serbia relies on traditional partners Russia and China, two countries it has continued to deepen ties with even as it works towards EU membership.

Serbia’s military spending in 2019 stood at 1.14 billion Dollars or 43 percent higher than a year earlier, SIPRI said specifying that the increase amounted to 326 million Dollars. SIPRI ranked Serbia 5th on the list of 15 countries with the biggest annual increase in spending on the military. RFE recaled that Serbia has been arming itself intensely over the past few years, relying heavily on Russia for its purchases, with a lack of transparency in financing those purchases. All the countries of the Western Balkans increased their military expenditures with Serbia and Croatia (1.009 billion Dollars) leading the field. The SIPRI report said that Albania’s military spending stood at 189 million Dollars in 2019, Bosnia-Herzegovina’s 183, North Macedonia 151 Million, Montenegro 89.3 million and Kosovo 65.7 million Dollars.

The Law on Budget System Law regulates the area of public finance management in a new, completely different way. The bottom line is that the new regulation embraces and incorporates the principles and procedures of internationally recognized framework and methodology. This step could be considered an actual milestone towards complying with the regulations of developed countries and opening the possibility for total European integration. An integrated budget system with a methodology ensuring efficient and transparent planning, programming, budgeting and execution has been created, replacing the outdated fragmented management of public finances approach. Definition of a common legal framework, unified budget classification and uniform criteria and documents required for the production and control of each segment within an integrated budget system have made the setting up of the new concept possible.

Defense budget is planned and adopted in accordance with the reformed normative-systems solutions, and has therefore undergone a certain content and procedural changes in comparison with the previous ones. Therefore, it can fully meet the requirements set by the Budget Law, satisfying, in consistence with that, the required form and content so as to fully comply with the set purpose and tasks.

Defense Planning Committee has a significant role in the process of managing the Defense system. Defense planning system provides the necessary capacity building, operation and development of Defense, rational employment of the available resources and transparency of financial resources for Defense purposes disposing.

Planning funding for Defense is based on the realistic economic potential of Serbia, aims and tasks of the Defense system, security assessment, defined priorities and assumed obligations. The plan clearly defines the long-term, medium term and annual priorities and provides economical and efficient use of funds approved for the defense. Based on the strategic choices and needs identified, the system of planning, programming, budgeting and execution through the development plans and programs directly defines the Defense resource management in view of building capacity for achieving the assigned missions and tasks.

Defense funding is done on an annual basis from funds that are established by the Budget Law of the Republic of Serbia. The main sources of financing the operation and development of the Defense system are: funds from the budget of the Republic of Serbia, its own revenue, allocated surplus revenues from previous years, donations from foreign countries and international organizations, income from sale of non-financial assets, unspent funds from donations from previous years and credit-debit of the Republic of Serbia abroad.

Planning of special funds in the budget of the Republic of Serbia, efforts shall be made to provide financial resources for equipping Air Force and Air Defense with complex combat systems, as well as participation of the Serbian Armed Forces and other defense structures in multinational operations and other activities outside the Republic of Serbia. For each fiscal year, the Ministry of Defense prepares a draft financial plan for the Defense, in particular ensuring that the plan be harmonized with the plans and programs for the development and functioning of the Defense in accordance with the Memorandum on Budget and Economic and Fiscal Policy and Guidelines for the Preparation of the Budget of the Republic of Serbia.

Transparency in Defense planning and financing is achieved through the procedure of budget preparation, adoption, implementation, control and audit. Planning, development, adoption and execution of the financial plan of Defense are based on a single budget classification. The main consideration in designing the Defense system financing is to provide the necessary capacity building of the Defense system with a more favourable cost structure. The new cost structure should allow for a greater share of total costs related to investment and operating costs, while reducing the share of personnel costs.

The 2010 White Paper set a target cost structure of the Defense budget is as follows: 50% personnel costs, 30% operating costs and 20% investment costs. Bearing in mind the current state of defense, and the present structure of the costs of defense, the target structure will be reached gradually. Such a cost structure was to be established no later than 2016. The cost structure for 2010, disregarding funds for military pensions, funds for personnel costs account for 65%, operating for 22.2% and investments for 12.8%. In the period from 2010 to 2013, it will be aimed at setting the cost structure in which the funds for personnel costs account for 50%, operating for 30% and investment with 20% of the defense budget.

For regular operation and development of Defense, in accordance with the methodology of the International Monetary Fund – Government Finance Statistics 1986, it is necessary to provide at least 2% of gross domestic product, with no funds for the payment of military pensions. Providing at least 2% of gross domestic product for the regular functioning and development of the defense system and planning of special funds in the budget of the Republic of Serbia for equipping Air Force and Air Defense of Serbia with complex combat systems, as well as providing special funds in the budget for the participation of the Serbian Armed Forces and other defense forces in multinational operations and other activities abroad, will create conditions for the revitalisation of the capability of the Serbian Armed Forces to carry out missions and tasks for national defense.