Yugoslav state in the early 1990s and the ensuing Wars of Yugoslav Succession seriously debilitated the economy of Serbia and Montenegro. Economic sanctions imposed on the FRY by the United Nations (UN) due to the nation’s involvement in the wars in Croatia and Bosnia intensified the economic damage. During the early 1990s the FRY experienced runaway inflation, a high rate of unemployment (more than 60 % in 1993), and a collapse in production. Tough measures designed to reduce public spending and increase productivity, along with the introduction of a new currency linked to the German currency in early 1994, began to bring inflation under control, and gross domestic product (GDP) grew at an annual rate of about 5 to 6 % in 1994 and by a similar rate in 1995. Following a peace agreement bringing the war in Bosnia to an end, the UN lifted the sanctions against the FRY in October 1996. This boosted economic performance, accelerating GDP growth to 7.4 % in 1997.

Yugoslavia adopted an avowedly socialist economic system modeled on institutions in the Soviet Union, but, following its break with the Communist Information Bureau (Cominform) in 1948, a system evolved that allowed increasing opportunity for individual enterprise. Although most farmers were gathered into collective farms, this unpopular policy was abandoned after 1953. In Serbia the institution continued mainly in former German estates in the Vojvodina, where the regime had resettled migrants from mountainous regions of Serbia and Montenegro. The communist regime also nationalized existing industrial enterprises and embarked on an ambitious policy of rapidly creating more. Using funds derived from the profits of manufacturing plants in the long-developed industrial regions of Slovenia and Croatia

The swift collapse of the Yugoslav federation in 1991 was followed by highly destructive warfare, the destabilization of republic boundaries, and the breakup of valuable interrepublic trade flows. Output in Yugoslavia dropped by half in 1992-93. Like the other former Yugoslav republics, it had depended on its sister republics for large amounts of energy and manufactures. Wide differences in climate, mineral resources, and levels of technology among the republics accentuated this interdependence, as did the communist practice of concentrating much industrial output in a small number of giant plants. Hyperinflation ended with the establishment of a new currency unit in June 1993; prices were comparatively stable from 1995 through 1997, but inflationary pressures resurged in 1998.Reliable statistics continue to be hard to come by, and the GDP estimate is extremely rough. The economic boom anticipated by the government after the suspension of UN sanctions in December 1995 has failed to materialize. Government mismanagement of the economy is largely to blame, but the damage to Yugoslavia's infrastructure and industry by the NATO bombing during the war in Kosovo have added to problems. All sanctions now have been lifted. Yugoslavia is in the first stage of economic reform. Severe electricity shortages are chronic, the result of deficiency of investment by former regimes, depleted hydropower reservoirs due to extended drought, and deficiency of funds. GDP growth in 2000 was perhaps 15%, which made up for a large part of the 20% decline of 1999.