REPUBLIC OF SERBIA Ministry of Finance I NVESTOR P RESENTATION O CTOBER 2016
1. Republic of Serbia – Overview 2. Macroeconomic Background 3. Banking Sector 4. Fiscal Policy and Debt Management Strategy
Serbia at a Glance Resilient economy on the path to full integration with Europe Key Facts EU Non-EU Form of Government: Parliamentary Republic Vilnius Territory: 88,361 sq. km Novi Sad Capital: Belgrade 7.2 million (1,2) Population: Belgrade Kragujevac EUR 4,626 (1,2) GDP per capita: EUR 32.9bn (1,2) Nominal GDP: SERBIA Nis Credit ratings: BB-/B+/B1 Currency: Serbian Dinar (RSD) EUR/RSD = 123.2139 (3) Current exchange rate: USD/RSD = 109.6404 (3) 1 National Statistics Office as of 2015 , 2 Excluding Kosovo and Metohija, 3 NBS as of 03 October 2016 Recent Milestones and Progress to EU accession Serbia opened EC agrees to start Responses to Formation of new Formation of new chapters 32 and Serbia’s EU accession the European Government Government 35 in the process Commission’s negotiations in January of EU accession 2014 Questionnaire Jan 2014 Nov 2014 Dec 2015 July 2016 Aug 2016 April 2014 2012 2013 2009 2011 2006 2008 2009 2011 Serbia opened chapters 23 and Serbia reached 24 in the process EU membership EU candidate Serbia started EU IMF agreement of EU accession application status awarded accession negotiations 3
Serbia’s Rating In Comparative Perspective Oct-16 Oct-15 Change Oct-16 Oct-15 Change Oct-16 Serbia BB- BB- No Change BB- B+ B1 Bulgaria BB+ BB+ no change BBB- BBB- no change Baa2 Croatia BB BB no change BB BB no change Ba2 Ba1 Hungary BBB- BB+ BBB- BB+ Romania BBB- BBB- no change BBB- BBB- no change Baa3 no change Latvia A- A- A- A- no change A3 no change A3 Lithuania A- A- A- A- no change Credit Rating History Standard and Poor's – In July 2016, the S&P affirmed Serbia’s credit rating at BB-, while outlook remained stable. Main drivers of such decision are the successful implementation of the fiscal consolidation programme and structural reforms which will accelerate economic growth and contribute decreasing budget deficit of the Republic of Serbia. Fitch Ratings – In June 2016 , the Fitch ratings has upgraded the Republic of Serbia credit rating from 'B+' to 'BB-'. The Outlooks have been revised to stable.The main factors which contributed to credit rating upgrade are: - Successful implementation of fiscal consolidation measures; - Expected stronger economic growth in following years - Reduced general government deficit which will support downward path of public debt/GDP ratio Moody's – In March 2016, Moody ’s Investor Service has changed Serbia’s credit rating outlook to positive from stable and affirmed Serbia’s credit rating at B1. Moody’s decision to raise Serbia’s credit rating outlook reflects primarily the successful implementation of th e fiscal consolidation programme and structural reforms, as well as enhancements to the quality of Serbia's institutions and improved economic growth prospects. 4
1. Republic of Serbia – Overview 2. Macroeconomic Background 3. Banking Sector 4. Fiscal Policy and Debt Management Strategy
Exports Have Been A Major Driver Of Economic Growth • In 2015 the Republic of Serbia marked 0.7% growth, while estimated Real GDP Growth (Y-o-Y) growth for 2016 is revised up to 2.5% • In Q1 2016, GDP grew by 3.5% primarily on the basis of better 34.3 35 4% construction and industrial performance, while real economic growth in Q2 34 2016 was 2.0% 3% 33.4 34 33.3 32.9 2% • The GDP growth in 2015 was dominantly based on investments in fixed 33 2.6% 1% assets 8.3% (Y-o-Y) 33 1.4% 31.7 32 0.7% 0% • In the first eight months of 2016 exports of goods increased by 9.3% in 32 -1% value terms over the corresponding 2015 period, while imports of goods 31 -1.0% increased by 5.8% (in EUR terms) -2% 31 -1.8% • 30 -3% Exports of motor vehicles kept the leading 15.1% share followed by 2011 2012 2013 2014 2015 processed food products with 10.7% share, electrical equipment 8.2% share and basic metals 7.4% share in total exports (in EUR terms) GDP, EUR bn GDP growth rate • In the first eight months of 2016 the export-import ratio was on the level of Source: National Statistics Office, Ministry of Finance 77.2%, while in 2015 was 73.4% Real GDP Growth 2011 – 2016 (Y-o-Y) Exports of Goods – Nominal Growth (Y-o-Y) 30% 7 26.0% 25% 6 5 20% 4 Serbia 3 Romania 15% 2 Bulgaria 9.3% 10% 1 7.8% Croatia 0 3.8% 5% Hungary -1 1.4% -2 0% -3 2012 2013 2014 2015 Aug-16 2012 2013 2014 2015 QII 2016* Source: Eurostat Source: National Statistics Office, National Bank of Serbia *Preliminary Data 6
External Position Foreign Exchange Reserves (mln EUR) 11.5 • 11.2 At the end of August 2016 Serbia had a level of FX reserves at EUR 10.9 9.6bn (about 6 months of imports coverage) and net reserves at EUR 11.0 8.0bn which provide a good cushion for the Serbian external position 10.4 10.5 • At the end of June 2016 external debt stood at EUR 25.8bn, including 9.9 10.0 private sector external debt of EUR 10.8bn 9.6 9.5 • During 2015 EUR/RSD exchange rate showed limited volatility. In 2015 the average exchange rate EUR/RSD was 120.7 9.0 8.5 2012 2013 2014 2015 Aug-16 Source: National Bank of Serbia Exchange rate EUR/RSD (Sept 2015 – Sept 2016) Exchange Rate USD/RSD (Sept 2015 – Sept 2016) 128.0 120.0 126.0 116.0 124.0 112.0 122.0 108.0 120.0 104.0 118.0 100.0 116.0 96.0 114.0 92.0 112.0 88.0 110.0 84.0 Source: National Bank of Serbia Source: National Bank of Serbia 7
Trade Balance • Current account deficit in 2015 reached historical minimum level of Balance of Payments (% of GDP) 4.8% of GDP, while estimated CAD in 2016 is established at level of 4.2% of GDP 8.0% Net FDI Financial Account ex.FDI Current Account • In the first half of 2016, CAD was about 20% less compared to the 6.0% same period last year and amounted 4.0% of GDP 3.8% 4.0% 3.7% 5.3% 5.5% • 2.0% The significant growth rates in 2015 were recorded in export of 2.2% 1.4% tobacco products (+84%), furniture (+37%), machinery and 0.0% equipment(+20%), fabricated metal products (+18%) and textiles -2.0% -4.0% -4.8% -6.1% -6.0% (+11%), meanwhile in the first eight months of 2016 significant growth -4.0% rates were recorded in tobacco products (+63%), electrical equipment -1.8% -6.0% (+38%), chemical products (+22%) and furniture (+20%) comparing to -8.0% the same period last year 2013 2014 2015 Jul-16 • Recovery of euro zone will be very important for further acceleration Source: National Statistics Office, National Bank of Serbia of Serbian exports Trade Deficit (% of GDP) External Trade as (% of GDP) 7.0 21.0% Export Import 18.8% 60% 19.0% 50.2% 49.8% 6.0 46.4% 46.5% 45.1% 50% 13.3% 17.0% 5.0 38.8% 13.0% 13.0% 36.6% 11.4% 15.0% 40% 33.5% 32.1% 4.0 5.9 27.6% 13.0% 30% 3.0 11.0% 4.4 20% 2.0 2.6 9.0% 4.5 4.3 1.0 10% 7.0% 0.0 5.0% 0% 2012 2013 2014 2015 Aug-16 2012 2013 2014 2015 Aug-16 Trade deficit (EUR bn) Trade deficit (% of GDP) Source: National Statistics Office Source: National Statistics Office, National Bank of Serbia *Projected GDP 8
Serbia’s Exports and Imports in Jan-Aug 2016 Export of Goods Import of Goods 10% EU EU 20% CIS CIS 17% MEDA MEDA 7% Other Other 7% 10% 63% 66% Source: National Statistics Office Source: National Statistics Office Export of Goods Import of Goods Italy Italy 10% 16% Germany Germany Russian Federation Bosnia and Herzegovina 13% 13% China 48% Romania 51% 8% Hungary Russian Federation 8% Poland Montenegro 8% 5% Others Others 5% 5% 5% 5% Source: National Statistics Office Source: National Statistics Office 9
…And By Types Of Products External Trade as % GDP • Serbia’s exports are reasonably diversified, covering the full range of Export Import 60% products from intermediate inputs, to consumer and capital goods 49.8% 50.2% 46.4% 46.5% 50% 45.1% • This confirms that Serbia is already being integrated into the 38.8% 36.6% 40% 33.5% European trade system and is able to export goods to multinational 32.1% 27.6% 30% companies operating in the global supply chain • 20% Intermediate and capital goods have been the fastest growing export product categories in period 2011-2015, one of the positive results of 10% the direct foreign investment that Serbia has attracted in recent years 0% due to the Government of Serbia subsidy program 2012 2013 2014 2015 Aug-16 Source: National Statistics Office * Projected GDP Import Jan – Aug 2016 (CIF) Export Jan-Aug 2016 (FOB) Energy 3% 8% 9% 20% Intermediate goods Energy Intermediate goods 35% 24% Capital goods Capital goods 32% 14% Durable consumer goods Durable consumer goods Non durable consumer goods 5% 2% Unclassified by MIG destination Non durable consumer goods 23% 25% Unclassified by MIG destination Source: National Statistics Office Source: National Statistics Office 10
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