The economy of the Republic of Serbia is at an important turning point now. The first phase of the implementation of the transition process is completed, the reform processes are gaining a new momentum and entering the European Union is becoming more certain. In order to successfully finalize the transition processes, the reform of the public sector's system of functioning is inevitable, among other reforms. The public sector in Serbia is low-productive and inefficient, irrationally set, with a multitude of problems that for many years have constantly been growing and becoming more complicated. The high rate of employment and average salaries in the public sector, on the one hand, and the poorly-formulated operational systems, on the other, are so designed that the public sector has a bad influence on economic development in general. The paper will analyze the situation in the public sector of the Republic of Serbia, with a special emphasis on creating a realistic basis for its reform, as a key determinant of the successful completion of the transition process, taking into account the specifics of the Republic of Serbia's economy.