REPUBLIC OF SERBIA Ministry of Finance I NVESTOR P RESENTATION S EPTEMBER 2017
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 Population: 7.1 million (1,2) Belgrade Kragujevac EUR 4.971 (1,2) GDP per capita: EUR 35.3bn (1,2) Nominal GDP: SERBIA Nis Credit ratings: BB-/BB-/Ba3 Currency: Serbian Dinar (RSD) EUR/RSD = 119.0326 (3) Current exchange rate: USD/RSD = 99.9182 (3) 1 National Statistics Office as of 2017, Minstry of finance as of 2017, 2 Excluding Kosovo and Metohija, 3 NBS as of 15 September 2017 Recent Milestones and Progress to EU accession Responses to EC agrees to start Serbia opened Serbia opened Serbia’s EU accession chapters 20 and 26 the European Serbia reached chapters 23 and 24 in Commission’s the process of EU in the process of EU negotiations in January IMF agreement accession accession Questionnaire 2014 Dec Dec Jan Nov Feb July June 2006 2008 2009 2011 2013 2009 2011 2012 2015 2016 2014 2014 2017 2016 2017 Serbia opened EU membership Serbia opened Serbia opened EU candidate Serbia started EU chapters 7 and 29 in application chapters 32 and 35 chapters 5 and 25 status awarded accession the process of EU in the process of in the process of negotiations accession EU accession EU accession 3
Serbia’s Rating In Comparative Perspective Sept-17 Sept-16 Change Sept-17 Sept-16 Change Sept-17 Change Serbia BB- BB- no change BB- B+ Ba3 Bulgaria BB+ BB+ no change BBB- BBB- no change Baa2 no change Croatia BB BB no change BB BB no change Ba2 no change Baa3 no change Hungary BBB- BB+ BBB- BBB- no change no change Baa3 no change Romania BBB- BBB- BBB- BBB- no change no change A3 no change Latvia A- A- A- A- no change Lithuania A- A- no change A- A- no change A3 no change Credit Rating History Standard and Poor's – In June 2017, the S&P kept the credit rating of the Republic of Serbia at the level of BB-, with the positive outlook for improving the credit rating. Serbian economy is likely to expand in 2017-2019, on the back of healthy investment inflows - mainly foreign direct investment (FDI) and stronger private sector consumption supported by expanding employment, wage growth, and a stable inflow of worker. It is expected that the current Government will continue with the implementation of fiscal and structural reforms programs. The agency estimates that the CAD will be on average at the level of 4% in the period 2017-2020 and that the FDI net inflows will fully finance the CAD throughout 12-month forecast horizon. Fitch Ratings – In June 2017 , the Fitch ratings has left unchanged the Republic of Serbia credit rating at level 'BB-'. The outlook is stable. The affirmation of credit rating reflects the view that Serbia will continue to implement fiscal consolidation and structural reform program, as well as EU accession talks and the IMF program will remain important policy. The main drivers of positive trend are the improvement in Serbia medium-term growth prospects, further fiscal consolidation resulting in a reduction in the general government debt to GDP ratio and continued reduction in net external debt. Fitch expects the current account deficit to remain around 4-5% of GDP over the forecast horizon and to be fully covered by robust FDI inflows. It also estimates the general government deficit to be around 1.3% of GDP in 2017. Moody's – In March 2017, Moody ’s rating agency has upgraded Serbia’s credit rating to Ba3. The outlook has been revised to stable. Moody’s decision to raise Serbia’s credit rating reflects primarily the successful implementation of the fiscal consolidation program and structural reforms, as well as improved economic growth prospects, recovery in exports, the price stability and further opening of EU accession chapters. 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 2016 the Republic of Serbia marked 2.8% growth, while estimated growth Real GDP Growth (Y-o-Y) for 2017 and 2018 is revised up to 3.0% and 3.5%, respectively. • In Q1 2017 GDP grew by 1.0% primarily due to bad weather conditions, 36 4% 35,3 while domestic and foreign demand provided a boost to growth. In Q2 2017 34,1 35 3% 34,3 GDP growth was 1.3% on the basis of mining and energy sector recovery, and good manufacturing performance. 34 2% 33,4 33,3 32,9 2,6% 3,0% 33 1% • In the coming period 2017 GDP growth is expected to step up primarily on 1,4% 2,8% 31,7 32 0,7% 0% the basis of demand recovery, FDI, capital spending, and structural reforms. 31 -1% • In the first seven months of 2017 exports of goods increased by 13.2% in -1,0% 30 -2% value terms over the corresponding 2016 period, while imports of goods -1,8% increased by 13.1%. 29 -3% 2011 2012 2013 2014 2015 2016 2017* • Exports of motor vehnicles in the first seven months of 2017 had the leading 13.5% share followed by food products with 10.2% share, basic metal 9.5% GDP, EUR bn GDP growth rate share and plastic products 8.0% share in total exports (in EUR terms). Source: National Statistics Office, Ministry of Finance • In the first seven months of 2017 the export-import ratio was on the level of *Projected 77.7%, while in 2016 was 77.6%. Real GDP Growth 2011 – 2016 (Y-o-Y) Exports of Goods – Nominal Growth (Y-o-Y) 6 30% 5 26,0% 4 25% Serbia 3 Romania 20% 2 Bulgaria 1 13,2% 15% Croatia 11,5% 0 10% Hungary -1 7,8% -2 5% 3,8% -3 1,4% 2012 2013 2014 2015 2016 0% 2012 2013 2014 2015 2016 Jul-17 Source: Eurostat Source: National Statistics Office, National Bank of Serbia *Preliminary Data 6
External Position Foreign Exchange Reserves (mln EUR) • 11,5 At the end of August 2017 Serbia had a level of FX reserves at EUR 11,2 10.3bn (about 6 months of imports coverage) and net reserves at EUR 10,9 11,0 8.6bn which provide a good cushion for the Serbian external position • At the end of March 2017 external debt stood at EUR 26.2bn, including 10,4 10,5 10,3 private sector external debt of EUR 10.7bn 9,9 • 10,0 During 2015 and 2016 EUR/RSD exchange rate showed limited volatility. In 2015 and 2016 the average exchange rate EUR/RSD was 9,5 120.7 and 123.1 respectively, while in the first eight months of 2017 was 122.5 9,0 2012 2013 2014 2015 Aug-17 Source: National Bank of Serbia Exchange rate EUR/RSD (August 2016 – August 2017) Exchange Rate USD/RSD (August 2016 – August 2017) 125,0 126,0 120,0 124,0 115,0 122,0 110,0 120,0 105,0 118,0 100,0 116,0 95,0 114,0 90,0 112,0 85,0 110,0 Source: National Bank of Serbia Source: National Bank of Serbia 7
Trade Balance • Current account deficit in 2016 reached historical minimum level of Balance of Payments (% of GDP) 4.0% of GDP, while estimated CAD in 2017 and 2018 is established at level of 3.9% and 3.7% of GDP, respectively Net FDI Financial Account ex. FDI Current Account • In 2016 CAD was about 13.1% less compared to 2015 mainly due to 8,0% significant improvement in trade balance 6,0% 3,8% 4,0% • The significant growth rates in 2017 were recorded in export of basic 3,7% 5,4% 5,5% 4,5% 2,0% metals (+48%), paper and paper products (+26%), rubber and plastic 2,2% 1,4% 0,0% products(+23%) and coke and refined petroleum products (+22%) -2,0% -3,9% -4,0% -6,0% -4,7% comparing to last year -6,1% -4,0% -1,8% -6,0% • Strong FDI inflows in export-oriented sectors, will stay more than -8,0% sufficient to cover the CAD 2013 2014 2015 2016 2017* Source: National Statistics Office, National Bank of Serbia;* forecast Trade Deficit (% of GDP) External Trade as (% of GDP) Export Import 60% 54,4% 7,0 21,0% 51,0% 18,8% 49,8% 46,8% 46,5% 19,0% 50% 45,1% 6,0 42,2% 39,4% 13,3% 17,0% 36,6% 5,0 40% 33,6% 32,1% 13,0% 13,0% 11,6% 15,0% 27,6% 4,0 5,9 30% 12,1% 13,0% 3,0 20% 11,0% 2,0 4,5 4,4 4,0 4,3 2,5 9,0% 10% 1,0 7,0% 0% 2012 2013 2014 2015 2016 Jul-17 0,0 5,0% 2012 2013 2014 2015 2016 Jul-17 Trade deficit (EUR bn) Trade deficit (% of GDP) Source: National Statistics Office Source: National Statistics Office, National Bank of Serbia 8
Serbia’s Exports and Imports in Jan-July 2017 Export of Goods Import of Goods 10% EU 20% CIS 16% EU MEDA CIS 7% Other 7% MEDA 10% 63% 67% Other Source: National Statistics Office Source: National Statistics Office Export of Goods Import of Goods Italy Italy 13% Germany 14% Germany China Bosnia and Herzegovina 10% 13% 49% 53% Russian Federation Russian Federation 8% Romania 8% Hungary 7% 6% Montenegro 5% Poland 4% 5% 5% Others Others Source: National Statistics Office Source: National Statistics Office 9
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