The Serbian parliament approved a revised 2013 budget on Friday, which will bring the country's deficit to 4.7 percent of the GDP, compared to an initially planned 3.3 percent.
"It is still high, but it is the lowest possible," Finance Minister Mladjan Dinkic told the deputies who approved the revised budget with 129 votes for and 55 against.
The budget gap is now planned at 178.3 billion dinars (1.5 billion euros, $2.0 billion).
The deficit will be funded by loans from domestic and international creditors, as well as by the sale of euro-denominated bonds, the government said.
Savings worth 36 billion dinars will be made through restructuring of public companies, government spending cuts and an improved investment climate, Dinkic said.
"We have cut spending wherever it was possible," Dinkic said.
The budget is based on a 2.0 percent GDP growth projection this year and projected inflation of 5.5 percent for this year.
Serbia's economy contracted by 1.7 percent in 2012, not as bad as the forecast of a 2.0 percent drop.
Serbia says it might negotiate a new loan with the International Monetary Fund (IMF).
The previous loan, worth one billion euros, was frozen in February 2012 as the previous government had not complied with budget commitments.
At the time, the IMF demanded the budget deficit in 2012 should not exceed 4.25 percent of GDP while public debt was limited to 45 percent of GDP.