REPUBLIC OF SERBIA Ministry of Finance Investor Presentation May 2014
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 7.1 million (1,2) Population: Belgrade Kragujevac EUR 4,453 (1,2) GDP per capita: EUR 32.0bn (1,2) Nominal GDP: SERBIA Nis Credit ratings: BB-/B+/B1 Currency: Serbian Dinar (RSD) EUR/RSD = 115.6751 (3) Current exchange rate: USD/RSD = 83.7800 (3) 1 National Statistics Office as of 2013, 2 Excluding Kosovo and Metohija, 3 NBS as of 30 April 2014 Recent Milestones and Progress to EU accession Responses to Stabilisation and EC agrees to start the European Serbia’s EU accession Association Formation of new Commission’s Agreement with the EU negotiations in January Formation of new Government Questionnaire 2014 Government April 2014 2008 2009 2011 Mar 2012 July 2012 Jan 2014 2006 Sept 2013 2008 2009 2011 Dec 2013 EU membership Government Serbia started EU EU candidate application restructuring accession negotiations status awarded 3
Serbia’s Rating In Comparative Perspective Serbia’s rating remained the same through the crisis, in contrast to downgrades for many higher rated regional sovereigns Apr-14 Jan-07 Change Jan -14 Jul -13 Change Jul-13 Serbia BB- BB- No Change B+ BB- B1 Baa2 Bulgaria BBB BBB+ BBB- BBB Ba1 Croatia BB BBB BBB- BBB- No Change Ba1 Hungary BB BBB+ BB+ BBB+ Baa3 Romania BB+ BBB- BBB- BBB Baa2 Latvia BBB A BBB A- Baa1 Lithuania BBB BBB+ BBB A Credit Rating History Standard and Poor's – In April 2014, the S&P affirmed ratings at BB- with negative outlook. S&P noted that high fiscal and external deficits and limited monetary flexibility are key constraints on the ratings while the economy's growth potential, stemming from its educated labour force and the prospect of EU membership are key drivers supporting the rating, although this is obstructed by large public sector, labor market inefficiencies, and uncertainty in the business environment. Fitch Ratings – In January 2014, the Fitch downgraded Serbia’s rating by one notch, from BB- to B+, with stable outlook. The key drivers were uncertain outlook of public finances, public debt rising, fragile economic recovery. The uncertain result of Government’s plan for resturcturing of SOE. Moody's – In July 2013, Moody ’s Investor Service assigned B1 rating to the Republic of Serbia, with a stable outlook. The main drivers of Serbia's B1 ratings are: the government’s fiscal deficits and debt levels, the economy’s subdued near -term growth prospects and wide current account deficits and the institutional benefits of Serbia’s future EU accession process. 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 Recovery Real GDP Growth (Y-o-Y) • The Republic of Serbia marked one of the highest real GDP growth 33 4% rates in the CEE region in 2013 (2.5%), while in the Q1 2014 growth 1.0% 2.5% 32 was on the level of 0.4% 3% • 31 Favourable trends observed at the end of the last year, continued 1.6% 2% 30 throughout January - March 2014, with economic activity being driven 1% 29 1.0% by the export oriented industries such as automobile and chemical 0% 28 -1.7% industry 32.5 -1% • 27 In the period January - March 2014 value of goods exports increased by 32.0 28.0 31.1 -2% 26 17.9% comparing to corresponding period in 2013 while goods imports 29.2 25 -3% increased 0.6% 2010 2011 2012 2013 2014p • Exports of motor vehicles keeps the leading role with 19.0% share (in EUR terms growth was 39% Y-o-Y) followed by processed food GDP, EUR bn GDP growth rate products with 11% share (in EUR terms growth was 11.0% Y-o-Y) • In the first quarter 2014 export-import ratio reached level of 75% Source: National Statistics Office, Ministry of Finance Real GDP Growth 2011 – 2013 (Y-o-Y) Exports of Goods – Nominal Growth 8.0% 30% 6.0% Serbia 4.0% 25% 26% Romania 2.0% 20% Bulgaria 0.0% 15% 18.8% Croatia -2.0% 13.9% Hungary 10% -4.0% 5% -6.0% 3.8% 2011 2012 2013 -Q1 2013 -Q2 2013 - Q3 2013 -Q4 0% 2010 2011 2012 2013 Source: National Statistics Office, Bloomberg Source: National Bank of Serbia 6
External Position Foreign Exchange Reserves • Comfortable level of FX reserves of EUR 10.4bn as 31 March 2014 (over 7 months of imports coverage) and net reserves amounting to 13.0 12.1 EUR 7.0bn provide a good cushion for the Serbian external position 12.0 11.2 10.9 11.0 10.4 • The Government export-oriented policy provided significant results in 10.0 10.0 2013 with decreasing level of current account deficit to historical 9.0 minimum, positive trends in 2014 can contribute more to strengthening of external position of Serbia 8.0 7.0 • External debt on the end of February 2014 was on the level of EUR 6.0 25.5bn, out of which private sector external debt was EUR 12.4bn 5.0 • In the period from April 2013 to April 2014 RSD/EUR showed limited 2010 2011 2012 2013 2014 - Q1 volatility (active managing role of NBS) Source: National Bank of Serbia Exchange rate EUR/RSD (April 2013 – April 2014) Exchange Rate USD/RSD (April 2013 – April 2014) 121.0 90.0 119.0 88.0 117.0 115.0 86.0 113.0 84.0 111.0 109.0 82.0 107.0 80.0 105.0 Source: National Bank of Serbia Source: National Bank of Serbia 7
Trade Balance Significantly Improved with Trend Continuation Balance of Payments (% of GDP) • Current account deficit in 2013 reached historical minimum level of 5.0% of GDP, while projected CAD for 2014 is 4.2% of GDP 15.0% Net FDI Financial Account ex.FDI Current Account • The improvements were due to activation of export-oriented 10.0% 0.8% investments in automobile, electronic and chemical industries, slower 2.4% 5.8% 5.0% 3.1% import growth and higher remittances inflow compared to the same 8.9% 4.6% 3.4% period last year 2.8% 0.0% -5.0% • The export - import ratio showed strong upward trend - from 63% for -6.7% -9.1% -5.0% -10.5% period January-March 2013 to 75% in the period January-March 2014 -10.0% • In February 2014 the goods exports were 52.4% higher than exports level in 2008, while imports were below 2008 level 9.5% -15.0% 2010 2011 2012 2013 • Recovery of euro zone will be very important for further acceleration of Serbian exports Source: National Statistics Office, National Bank of Serbia Trade Deficit (% of GDP) External Liquidity Indicators (% of GDP) CA Deficit Debt Repayments FX Reserves 6.0 19.0% 17.7% 16.3% 16.4% 45.0% 17.0% 5.0 38.3% 36.5% 40.0% 35.7% 34.1% 15.0% 35.0% 4.0 11.1% 30.0% 13.0% 3.0 25.0% 4.6 11.0% 5.3 5.2 20.0% 3.6 13.0% 2.0 13.8% 12.7% 11.6% 9.0% 15.0% 10.5% 9.1% 10.0% 6.7% 1.0 5.0% 7.0% 5.0% 0.0 5.0% 0.0% 2010 2011 2012 2013 2010 2011 2012 2013 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 the period January- March 2014 Export of Goods Import of Goods 10% 17% 14% EU EU 6% CIS CIS 8% MEDA MEDA 14% 63% Other Other 68% Source: National Statistics Office Source: National Statistics Office Export of Goods Import of Goods Italy Italy Germany 12% Germany 19% Bosnia and Herzegovina Russian Federation 12% 44% 48% Russian Federation China 13% 11% Montenegro Hungary 8% 7% Romania Poland 7% 5% 5% 5% 4% Others Others Source: National Statistics Office Source: National Statistics Office 9
…And By Types Of Products External Trade as % GDP • Serbia’s exports exhibit a healthy degree of product diversification, Export Import 60% covering the full range of products from intermediate inputs through 49.4% 48.4% 50% 45.3% 44.4% consumer goods, to capital goods • 40% 34.4% This demonstrates the extent to which Serbia is already being 29.5% 26.4% 26.8% integrated into the European trade system, supplying goods to 30% multinational companies operating in the global supply chain 20% • Intermediate and capital goods have been the fastest growing 10% product categories, one of the results of the direct foreign investment 0% that Serbia has attracted in recent years 2010 2011 2012 2013 Source: National Statistics Office * Projected GDP for 2013 Import Jan – March 2014 (CIF) Export Jan – March 2014 (FOB) Energy Energy 4% 8% Intermediate goods Intermediate goods 15% 14% 21% Capital goods Capital goods 35% 14% Durable consumer goods Durable consumer goods 5% 32% 2% Non durable consumer goods Non durable consumer goods 23% 27% Unclassified by MIG Unclassified by MIG destination destination Source: National Statistics Office Source: National Statistics Office 10
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