REPUBLIC OF SERBIA Ministry of Finance I NVESTOR P RESENTATION J ANUARY 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 7.2 million (1,2) Population: Belgrade Kragujevac EUR 4,778 (1,2) GDP per capita: EUR 34.1bn (1,2) Nominal GDP: SERBIA Nis Credit ratings: BB-/BB-/B1 Currency: Serbian Dinar (RSD) EUR/RSD = 123.4723 (3) Current exchange rate: USD/RSD = 117.1353 (3) 1 National Statistics Office, Minstry of finance as of 2016, 2 Excluding Kosovo and Metohija, 3 NBS as of 30 December 2016 Recent Milestones and Progress to EU accession Serbia opened EC agrees to start Formation of new Formation of new Responses to Serbia’s EU accession chapters 32 and Government Government the European 35 in the process Commission’s negotiations in January of EU accession 2014 Questionnaire April Nov Jan Dec July Aug Dec 2009 2011 2012 2013 2006 2008 2009 2011 2014 2014 2015 2016 2014 2016 2016 Serbia opened Serbia opened Serbia started EU Serbia reached chapters 5 and 25 EU candidate status chapters 23 and 24 EU membership accession IMF agreement in the process of awarded in the process of application negotiations EU accession EU accession 3
Serbia’s Rating In Comparative Perspective Dec-16 Dec-15 Change Dec-16 Dec-15 Change Dec-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 Baa3 Hungary BBB- BB+ BBB- BB+ no change Baa3 Romania BBB- BBB- BBB- BBB- no change no change A3 Latvia A- A- A- A- no change Lithuania A- A- no change A- A- no change A3 Credit Rating History Standard and Poor's – In December 2016, the S&P affirmed Serbia’s credit rating at BB-, while outlook revised to positive from stable. Main factors which contributed to revision are Serbia`s improved fiscal performance and the prospects for further gains. The improved result comes from better collections of VAT and excise taxes revenues and higher non-tax revenues. This credit rating agency emphasizes improvement of Serbia`s CAD, and it is expected that the FDI net inflows will fully finance the CAD. The Serbian economy saw a continued recovery throughout 2016, with real GDP expected to grow by 2.7%. Fitch Ratings – In December 2016 , the Fitch ratings affirmed 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 to continue EU accession negotiations and implement further the IMF reform program. The government of the Republic of Serbia continues resolving structural issues in conditions of economic growth based mainly on investments, public enterprises restructuring and FDI attraction. Fitch Ratings also emphasizes that the Serbia`s CAD has been fully covered by FDI inflows since 2015, leading to a gradual decline in net external debt. 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 the fiscal consolidation program 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 0.8% growth, while estimated Real GDP Growth (Y-o-Y) growth for 2016 and 2017 is revised up to 2.7% and 3.0% respectively. • In Q1 2016, GDP grew by 3.5% primarily on the basis of better 35 4% construction and industrial performance, while real economic growth in Q2 34,1 34,3 35 2016 was 2.0%. In Q3 2016, real GDP increased by 2.5% in comparison to 3% 34 33,5 33,4 the corresponding period of the previous year, while in Q4 increased by 2% 33,3 34 2,7% 2,6% 2,5%. 33 1% 1,4% 33 • The GDP growth in 2016 was dominantly based on investments in fixed 0,7% 0% 31,7 32 assets 6.4% (Y-o-Y). 32 -1% -1,0% 31 • In 2016 exports of goods increased by 11.5% compared to 2015, while -2% 31 -1,8% imports of goods increased by 6.1% (in EUR terms). 30 -3% 2011 2012 2013 2014 2015 2016 • Exports of motor vehicles in 2016 kept the leading 14.3% share followed by processed food products with 11.1% share, electrical equipment 8.4% GDP, EUR bn GDP growth rate share and basic metals 7.6% share in total exports (in EUR terms). Source: National Statistics Office, Ministry of Finance • In 2016 the export-import ratio was on the level of 77.2%, while in 2015 was 73.5%. Real GDP Growth 2011 – 2016 (Y-o-Y) Exports of Goods – Nominal Growth (Y-o-Y) 5 4 30% 26,0% 3 Serbia 25% 2 Romania 20% 1 Bulgaria 0 15% Croatia 11,5% -1 Hungary 10% 7,8% -2 5% 3,8% -3 1,4% 2012 2013 2014 2015 Q3 2016* 0% 2012 2013 2014 2015 2016 Source: Eurostat Source: National Statistics Office, National Bank of Serbia *Preliminary Data 6
External Position Foreign Exchange Reserves (mln EUR) • At the end of December 2016 Serbia had a level of FX reserves at 11,5 11,2 EUR 10.2bn (about 6 months of imports coverage) and net reserves at 10,9 EUR 8.4bn which provide a good cushion for the Serbian external 11,0 position 10,4 10,5 • 10,2 At the end of September 2016 external debt stood at EUR 25.3bn, 9,9 including private sector external debt of EUR 10.4bn 10,0 • During 2015 and 2016 EUR/RSD exchange rate showed limited 9,5 volatility. In 2015 and 2016 the average exchange rate EUR/RSD was 120.7 and 123.1 respectively 9,0 2012 2013 2014 2015 Dec-16 Source: National Bank of Serbia Exchange rate EUR/RSD (Dec 2015 – Dec 2016) Exchange Rate USD/RSD (Dec 2015 – Dec 2016) 125,0 125,0 124,0 120,0 123,0 115,0 122,0 121,0 110,0 120,0 105,0 119,0 118,0 100,0 117,0 95,0 116,0 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 was planned at level of 4.2% of GDP Net FDI Financial Account ex. FDI Current Account • In the first eleven months of 2016, CAD was about 17.5% less 8,0% compared to the same period last year mainly due to strong growth of 6,0% exports of goods and services 3,8% 4,0% 3,7% 5,5% 5,2% 2,0% • The significant growth rates in 2016 were recorded in tobacco 2,2% 1,4% 0,0% products (+48%), electrical equipment (+32%), chemical products -2,0% -4,0% -6,0% -4,8% (+22%) and computer and electronic products (+20%) comparing to -6,1% -4,0% last year -1,8% -6,0% -8,0% 2013 2014 2015 2016 Source: National Statistics Office, National Bank of Serbia Trade Deficit (% of GDP) External Trade as (% of GDP) 7,0 21,0% Export Import 18,8% 60% 19,0% 6,0 51,0% 49,8% 46,5% 46,8% 13,3% 50% 45,1% 17,0% 5,0 39,4% 13,0% 13,0% 11,6% 15,0% 36,6% 40% 33,6% 4,0 5,9 32,1% 13,0% 27,6% 4,0 30% 3,0 11,0% 4,4 20% 2,0 9,0% 4,5 4,3 10% 1,0 7,0% 0,0 5,0% 0% 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 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 2016 Export of Goods Import of Goods 10% EU 20% CIS 17% EU MEDA 7% CIS Other MEDA 7% 10% 63% 66% Other Source: National Statistics Office Source: National Statistics Office Export of Goods Import of Goods Italy Italy 10% Germany 16% Germany Russian Federation 13% Bosnia and Herzegovina 13% 52% 48% China Romania 8% Russian Federation Hungary 8% 8% 5% Montenegro 5% Poland 4% 5% 5% Others Others 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 products from intermediate inputs, to consumer and capital goods Export Import 60% 51,0% • 49,8% This confirms that Serbia is already being integrated into the 46,5% 46,8% 50% 45,1% European trade system and is able to export goods to multinational 39,4% 36,6% 40% companies operating in the global supply chain 33,6% 32,1% 27,6% • 30% Intermediate and capital goods have been the fastest growing export product categories in period 2011-2016, one of the positive results of 20% the direct foreign investment that Serbia has attracted in recent years 10% due to the Government of Serbia subsidy program 0% 2012 2013 2014 2015 2016 Source: National Statistics Office Export 2016 (FOB) Import 2016 (CIF) Energy 2% 9% 9% 20% Energy Intermediate goods Intermediate goods 35% 24% Capital goods Capital goods 33% 14% Durable consumer goods Durable consumer goods Non durable consumer goods 5% Unclassified by MIG destination 2% Non durable consumer goods 22% 25% Unclassified by MIG destination Source: National Statistics Office Source: National Statistics Office 10
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