Investor Presentation July 2012 Republic of Serbia Ministry of - PowerPoint PPT Presentation

Republic of Serbia Ministry of Finance Republic of Serbia – Ministry of Finance Investor Presentation July 2012

Republic of Serbia – Ministry of Finance Contents Republic of Serbia Ministry of Finance Page 3 Republic of Serbia Page 3 Republic of Serbia Page 7 Macroeconomic Background Page 7 Macroeconomic Background Page 23 Banking Sector Page 22 Banking Sector Page 25 Fiscal and Economic Policy Page 26 Fiscal and Economic Policy Page 27 Debt Management Page 28 Debt Management Page 39 References Page 40 References 2

Republic of Serbia – Ministry of Finance Republic of Serbia Republic of Serbia Ministry of Finance General Info  A SEE country, with landlocked position, spreading on the territory of the Balkans and Central Europe (Autonomous Province of Vojvodina)  Transition routes: Corridor X, Corridor XI, Corridor VII  As a Danube region country, Serbia has a connection with the North and Mediterranean Seas  Market economy, highly depended on foreign trade Area 88,361 km2 Population (excluding Kosovo) 7,120,666 GDP 2011 (in billion of EUR, excluding 31.1 Kosovo) GDP 2011 per capita (in EUR) 4,288 3

Republic of Serbia – Ministry of Finance Republic of Serbia Republic of Serbia Ministry of Finance Political Environment  The Republic of Serbia is a democratic country, with clear division of the legislative (Parliament), executive (Government and President) and judicial (Supreme and other Courts) powers  President (five years mandate) and Parliament deputies (four years mandate) are directly elected  The Parliament has 250 deputy seats, of which 126 is a minimum number of votes to form a Government  Major political parties are: Serbian Progressive Party (SNS), Democratic Party (DS), Socialistic Party of Serbia (SPS), Democratic Party of Serbia (DSS), United Regions of Serbia (URS) The National Assembly of the Republic of Serbia  General elections held on May 6 th 2012  The President of the Republic of Serbia is Tomsilav Nikolic, and expected PM Ivica Dacic is to form a coalition government by the end of July 4

Republic of Serbia – Ministry of Finance Republic of Serbia Republic of Serbia Ministry of Finance International Relations  The membership in the European Union (Serbia’s main trade partner) is one of the most important political and economic goals  At the EU Summit on March 1 st , 2012, Serbia has received a full candidate status for EU membership. Specific date for the start of the EU accession negotiations has not been set. European Parliament has recommended that negotiations should start as soon as possible  Membership in CEFTA has resulted in foreign trade surplus with other member countries (Western Balkans countries and Moldova)  Member of the Partnership for Peace Program. Due to government policy of military neutrality, NATO membership is not a goal  Observer status in the WTO - negotiations for membership are on the track 5

Republic of Serbia – Ministry of Finance Republic of Serbia Republic of Serbia Ministry of Finance Key Investor Considerations 1. Stable BB rating (S&P, March 2012) and stable BB- (Fitch, November 2011) 2. Transparent funding plan: defined by Budget Law of The Republic of Serbia and Public Debt Strategy for period 2012-2014 3. Sound public financial management 4. Fiscal sustainability and discipline defined by the Budget System Law 5. Continuous IMF support 6. Yield curve extended in 2011 and 2012 due to issuance of 3-year and 5-year RSD denominated government bonds 7. First successful Eurobond placement of 10 year bonds without embedded options (September 2011) 6

Republic of Serbia – Ministry of Finance Macroeconomic Background Republic of Serbia Ministry of Finance Standard & Poor’s Credit Ratings Country Sovereign local currency ratings Sovereign foreign currency ratings (LT/Outlook/ST) (LT/Outlook/ST) Serbia BB/Stable/B BB/Stable/B Romania BB+/Stable/B BB+/Stable/B Bulgaria BBB/Stable/A-3 BBB/Stable/A-3 Croatia BBB-/Negative/A-3 BBB-/Negative/A-3 Hungary BB+/Negative/B BB+/Negative/B Source: S&P GDP Growth Rates in % Average GDP growth rates for 2004-2011, % Country 2010 2011 Hungary Serbia 1.0 1.6 Croatia Latvia Romania -1.6 2.5 Serbia Bosnia and Herzegovina Bulgaria 0.4 1.7 Lithuania Croatia -1.2 0.0 Romania Macedonia Hungary 1.3 1.7 Bulgaria Montenegro SEE-EU -0.9 1.8 Poland SEE-non EU 0.7 1.9 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 Source: IMF Regional Economic Outlook 2011, IMF World Economic Outlook 2012, Ministry of Finance 7

Republic of Serbia – Ministry of Finance Macroeconomic Background Republic of Serbia Ministry of Finance Comparative Statistics Total External Debt to GDP, 2011 Real Export Growth of Goods and Services, 2011 160% 18% 16.0% 133.6% Serbia 16% 140% Serbia 13.8% 14% Romania 120% Romania 91.5% 99.5% 11.2% 12% 100% Bulgaria Bulgaria 9.7% 79.4% 75.5% 71.5% 75.8% 10% 8.1% 80% Croatia Croatia 7.1% 8% 60% Hungary Hungary 6% 40% SEE-EU SEE-EU 4% 2.4% 20% SEE-non-EU 2% SEE-non-EU 0% 0% Real GDP Growth, 2009 - 2011 4.0% 2.5% Serbia 1.9% 1.8% 1.6% 1.7% 1.7% 1.3% 1.0% 2.0% 0.7% 0.4% Romania 0.0% 0.0% Bulgaria -2.0% -0.9% -1.2% Croatia -1.6% -4.0% -3.1% -3.5% Hungary -6.0% -5.5% SEE-EU -6.0% -8.0% -6.6% -6.6% -6.8% SEE-non-EU 2009 2010 2011 Source: Ministry of Finance, IMF World Economic Outlook 2012, IMF Regional Economic Outlook 2011, http://www.imf.org/external/pubs/ft/reo/2011/eur/eng/pdf/c2.pdf  Serbia’s total external debt is lower than other peer memebers  Despite the Eurozone crisis, Serbia has had a higher export growth compared to most of its neighbors  Over the past few years, Serbia has had a GDP growth that remained consistently higher than neighboring countries 8

Republic of Serbia – Ministry of Finance Macroeconomic Background Republic of Serbia Ministry of Finance Serbia: Key Indicators Key Economic Indicators 2009 2010 2011 (% change y-o-y, constant prices) Private consumption -2.7% -1.9% -1.3% Government spending -4.4% -2.0% -0.9% Gross fixed capital formation -17.1% -3.9% 14.8% Export of goods and services -13.7% 16.5% 11.2% Import of goods and services -23.3% 2.6% 2.6% Source: Ministry of Finance Current Account Balance 2009 2010 2011 as % of GDP -7.2 -7.4 -9.5 Source: Ministry of Finance 9

Republic of Serbia – Ministry of Finance Macroeconomic Background Republic of Serbia Ministry of Finance GDP Growth Rate 34.0 5.0% 33.0 4.0% 3.8% 32.0 3.0% 1.6% 31.0 2.0% 32.7 1.0% 30.0 1.0% 29.0 0.0% 31.1 28.9 28.0 -1.0% 28.0 27.0 -2.0% 26.0 -3.0% -3.5% 25.0 -4.0% 2008 2009 2010 2011 GDP, billions EUR GDP Growth Rate (right axis) Source: Ministry of Finance  GDP growth reached 3.0% in Q1 2011, 2.5% in Q2 2011, in 0.6% in Q3 2011 and 0.6% in Q4 2011*  In the period January - December 2011 physical volume of industrial production has increased by 2.1%. During the same period, physical volume of retail sector has decreased by 16.7%, while physical volume of agriculture production has increased by 0.8% Source: Statistical Office of the Republic of Serbia 10

Republic of Serbia – Ministry of Finance Macroeconomic Background Republic of Serbia Ministry of Finance Main sectors GVA quarterly growth rates, 2010-2012 20.0% 15.0% Agriculture, forestry and fishing 10.0% Manufacturing 5.0% Electricity, gas and steam supply Construction 0.0% Wholesale and retail trade; repair of motor vehicles -5.0% and motorcycles Transportation and storage -10.0% Information and communication -15.0% Financial and insurance activities -20.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2010 2011 2012 Source: Statistical Office of the Republic of Serbia 11

Republic of Serbia – Ministry of Finance Macroeconomic Background Republic of Serbia Ministry of Finance Serbia: Structure of the GVA by Sectors* Q1 2012 AGRICULTURE, FORESTRY AND FISHING 6.8% MANUFACTURING 13.8% WHOLESALE AND RETAIL TRADE; REPAIR OF MOTOR 11.1% VEHICLES TRANSPORTATION AND STORAGE 7.9% EDUCATION, HEALTH AND SOCIAL PROTECTION INFORMATION AND COMMUNICATION 4.0% 30.5% REAL ESTATE ACTIVITIES 9.1% PROFESSIONAL, SCIENTIFIC AND TECHNICAL ACTIVITIES OTHER 4.0% 3.5% 9.2% NET INDIRECT TAXES Source: Statistical Office of the Republic of Serbia  Relatively high GVA real growth in Q1 2012 has been achieved in the fields of construction (7.8%) and information and communication sector (7.4%), while manufacturing and retail services sectors have registered negative growths of -3.1% and -3.2%, respectively * Other sectors include: Mining and quarrying, Construction, Accommodation and food service activities, Financial and insurance activities, Administrative and support service activities, Public administration and defense and compulsory 12 social security, Art and entertainment and recreation, Activities of households as employers, Other service activities

Republic of Serbia – Ministry of Finance Macroeconomic Background Republic of Serbia Ministry of Finance Serbia: Structure of the GDP Value Added Q1 2012 7.9% Agriculture 28.0% Industry Construction Services 61.6% 2.5% Source: Statistical Office of the Republic of Serbia 13