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

Republic of Serbia – Ministry of Finance

Page 3 Republic of Serbia Page 7 Macroeconomic Background Page 23 Banking Sector Page 25 Fiscal and Economic Policy Page 27 Debt Management Page 39 References

Contents

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Page 3 Republic of Serbia Page 7 Macroeconomic Background Page 22 Banking Sector Page 26 Fiscal and Economic Policy Page 28 Debt Management Page 40 References

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

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Republic of Serbia

• 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 Kosovo) 31.1 GDP 2011 per capita (in EUR) 4,288 General Info

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

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Republic of Serbia

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,
• f 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)

• General elections held on May 6th 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

The National Assembly of the Republic of Serbia

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

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Republic of Serbia

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 1st, 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

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• 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)

Key Investor Considerations

Republic of Serbia

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

7 Country Sovereign local currency ratings (LT/Outlook/ST) Sovereign foreign currency ratings (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 Standard & Poor’s Credit Ratings

Country 2010 2011 Serbia 1.0 1.6 Romania

• 1.6

2.5 Bulgaria 0.4 1.7 Croatia

• 1.2

0.0 Hungary 1.3 1.7 SEE-EU

• 0.9

1.8 SEE-non EU 0.7 1.9

GDP Growth Rates in %

Source: S&P

Macroeconomic Background

Source: IMF Regional Economic Outlook 2011, IMF World Economic Outlook 2012, Ministry of Finance

Average GDP growth rates for 2004-2011, %

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 Poland Montenegro Bulgaria Macedonia Romania Lithuania Bosnia and Herzegovina Serbia Latvia Croatia Hungary

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

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Macroeconomic Background

Comparative Statistics

• 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

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

71.5% 75.8% 91.5% 99.5% 133.6% 79.4% 75.5% 0% 20% 40% 60% 80% 100% 120% 140% 160% Serbia Romania Bulgaria Croatia Hungary SEE-EU SEE-non-EU 11.2% 16.0% 8.1% 2.4% 9.7% 13.8% 7.1% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% Serbia Romania Bulgaria Croatia Hungary SEE-EU SEE-non-EU

Total External Debt to GDP, 2011 Real Export Growth of Goods and Services, 2011 Real GDP Growth, 2009 - 2011

• 3.5%

1.0% 1.6%

• 6.6%
• 1.6%

2.5%

• 5.5%

0.4% 1.7%

• 6.0%
• 1.2%

0.0%

• 6.8%

1.3% 1.7%

• 6.6%
• 0.9%

1.8%

• 3.1%

0.7% 1.9%

• 8.0%
• 6.0%
• 4.0%
• 2.0%

0.0% 2.0% 4.0% 2009 2010 2011 Serbia Romania Bulgaria Croatia Hungary SEE-EU SEE-non-EU

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

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Macroeconomic Background

Serbia: Key Indicators Current Account Balance Key Economic Indicators (% change y-o-y, constant prices) 2009 2010 2011

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

2009 2010 2011

as % of GDP

• 7.2
• 7.4
• 9.5

Source: Ministry of Finance

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

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Macroeconomic Background

GDP Growth Rate

• 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: Ministry of Finance Source: Statistical Office of the Republic of Serbia

32.7 28.9 28.0 31.1 3.8%

• 3.5%

1.0% 1.6%

• 4.0%
• 3.0%
• 2.0%
• 1.0%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 25.0 26.0 27.0 28.0 29.0 30.0 31.0 32.0 33.0 34.0 2008 2009 2010 2011 GDP, billions EUR GDP Growth Rate (right axis)

Republic of Serbia Ministry of Finance

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Macroeconomic Background

Main sectors GVA quarterly growth rates, 2010-2012

Source: Statistical Office of the Republic of Serbia

• 20.0%
• 15.0%
• 10.0%
• 5.0%

0.0% 5.0% 10.0% 15.0% 20.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2010 2011 2012 Agriculture, forestry and fishing Manufacturing Electricity, gas and steam supply Construction Wholesale and retail trade; repair of motor vehicles and motorcycles Transportation and storage Information and communication Financial and insurance activities

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Macroeconomic Background

Serbia: Structure of the GVA by Sectors* Q1 2012

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 social security, Art and entertainment and recreation, Activities of households as employers, Other service activities

6.8% 11.1% 7.9% 4.0% 9.1% 4.0% 9.2% 3.5% 30.5% 13.8%

AGRICULTURE, FORESTRY AND FISHING MANUFACTURING WHOLESALE AND RETAIL TRADE; REPAIR OF MOTOR VEHICLES TRANSPORTATION AND STORAGE EDUCATION, HEALTH AND SOCIAL PROTECTION INFORMATION AND COMMUNICATION REAL ESTATE ACTIVITIES PROFESSIONAL, SCIENTIFIC AND TECHNICAL ACTIVITIES OTHER NET INDIRECT TAXES

Republic of Serbia Ministry of Finance

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Macroeconomic Background

Serbia: Structure of the GDP Value Added Q1 2012

Source: Statistical Office of the Republic of Serbia

7.9% 28.0% 2.5% 61.6% Agriculture Industry Construction Services

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

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Macroeconomic Background

Employment and Wages

• The trends in the labour market declined in 2011 due to decreased economic activity in private

sector, especially in the second half of the year. After stabilizing in 2010, the unemployment rate rose by 3.8pp and in December 2011 reached 23.0%. Until April 2012 unemployment rose by 2.5pp. IV/2010 XII/2010 IV/2011 XII/2011 IV/2012 Unemployment rate 19.2% 19.2% 22.2% 23.0% 25.5%

• During 2011 the average real wage had an average growth of 0.2% (Y-O-Y)

Source: Statistical Office of the Republic of Serbia

Average net wage Q1/2011 Q2/2011 Q3/2011 Q4/2011 Q1/2012 V/2012 Nominal wage, EUR 338 381 381 390 358 356 Nominal wage, RSD 35.108 37.994 38.760 40.139 39.068 40.442

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

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Macroeconomic Background

End-of-period Inflation Y-O-Y

Source: National Bank of Serbia

• The inflation rate, measured by consumer prices, was 7.0% in 2011 which is lower when compared to 10.3%

in 2010. Inflation growth (y-o-y) was above planned in 2011 and not within the target corridor, set at 4.5±1.5%

• Inflation in the first two quarters of 2011 reached 13.6%, due to rising food and regulated prices, declining

trends and cost pressures resulted in a reduction to 7.0%

• The NBS in the next three years will retain the existing monetary regime of controlling inflation and flexible

exchange rates. The NBS will continue to target headline inflation, in order to achieve low and stable price level growth

• According to the NBS estimate, year-on-year inflation will rise moderately from May onwards on the back of

the new agricultural season, past growth in import costs and a rise in administered prices in the second half of the year 8.6% 6.6% 10.3% 7.0% 5.5% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 2008 2009 2010 2011 2012/VI CPI

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Macroeconomic Background

Historical Daily EUR/RSD Exchange Rates January – June 2012

Source: National Bank of Serbia

• During 2011, RSD appreciated in 130 and depreciated in 122 trading days. The average EUR/RSD

exchange rate was 101.9502. The highest recorded closing mid exchange rate was 106.49, whereas the lowest was 96.70

• Between period January – June 2012 average EUR/RSD exchange rate was 110.9201. The highest

recorded closing mid exchange rate was 117.6943, whereas the lowest was 103.6922

110.9201 100 102 104 106 108 110 112 114 116 118 120 04.01.2012. 09.01.2012. 12.01.2012. 17.01.2012. 20.01.2012. 25.01.2012. 30.01.2012. 02.02.2012. 07.02.2012. 10.02.2012. 17.02.2012. 22.02.2012. 27.02.2012. 01.03.2012. 06.03.2012. 09.03.2012. 14.03.2012. 19.03.2012. 22.03.2012. 27.03.2012. 30.03.2012. 04.04.2012. 09.04.2012. 12.04.2012. 19.04.2012. 24.04.2012. 27.04.2012. 04.05.2012. 09.05.2012. 14.05.2012. 17.05.2012. 22.05.2012. 25.05.2012. 30.05.2012. 04.06.2012. 07.06.2012. 12.06.2012. 15.06.2012. 20.06.2012. 25.06.2012. 28.06.2012. Exchange rate (EUR/RSD) Average exchange rate (EUR/RSD)

Republic of Serbia Ministry of Finance

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Macroeconomic Background

Source: National Bank of Serbia

Balance of Payment, EUR Billions

Source: National Bank of Serbia

Export and Import volumes Foreign Reserves

National Bank of Serbia Foreign Exchange Reserves, EUR billions 2009 2010 2011 2012/VI 10.6 10.0 12.1 10.2

5.4 3.5 1.4 1.2 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 2009 2010 2011 2012/IV Import goods and services (fob), EUR bn Export goods and services (fob), EUR bn Current account deficit, EUR bn Financial account surplus, EUR bn 12.0 11.7 12.9 11.3 10.5 11.0 11.5 12.0 12.5 13.0 2009 2010 2011 2012/V Total Foreign Exchange Reserves, EUR bn

Republic of Serbia Ministry of Finance

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Macroeconomic Background

Geographic Distribution of Foreign Trade January-May 2012

Source: Statistical Office of the Republic of Serbia

EUR, millions EU CEEC CIS MEDA* Other Export of goods 1.974 146 305 778 143 Import of goods 3.370 91 1.048 502 988

* CEEC (Central and Eastern European Countries), MEDA (Mediterranean Economic Development Area, e.g. Croatia, Bosnia and Herzegovina, Turkey, etc.) Import of Goods Export of Goods 59.0% 4.4% 9.1% 23.2% 4.3% EU CEEC CIS MEDA Other 56.2% 1.5% 17.5% 8.4% 16.5% EU CEEC CIS MEDA Other

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Macroeconomic Background

Main Foreign Trade Partners January-May 2012

Source: Statistical Office of the Republic of Serbia

Export of Goods Import of Goods 15.2% 8.7% 12.2% 11.6% 12.3% 0.2% 3.2% 5.4% 3.2% 4.3% 8.6% 3.4% 3.3% 5.5% 2.7% 15.1% 18.8% 12.1% 6.3% 3.6% 10.2% 6.8% 4.5% 4.8% 3.7% 0.9% 4.1% 3.7% 2.1% 3.1%

Germany Russian Federation Italy Romania Bosnia and Herzegovina China Hungary Slovenia Austria Croatia Montenegro France Bulgaria Macedonia Turkey

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Macroeconomic Background

Source: Statistical Office of the Republic of Serbia

External Trade January-May 2012 EUR, millions

Export (CIF) Import (CIF) Energy

124 1.241

Intermediate goods

1.486 2.062

Capital goods

403 1.066

Durable consumer goods

142 136

Non durable consumer goods

869 877

Unclassified by MIG destination

323 616

Total

3.346 5.999

Export (CIF) Import (CIF) 3.7% 44.4% 12.0% 4.3% 26.0% 9.6% 20.7% 34.4% 17.8% 2.3% 14.6% 10.3%

Energy Intermediate goods Capital goods Durable consumer goods Non durable consumer goods Unclassified by MIG destination

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

Macroeconomic Background

21 Foreign Direct Investment in Serbia in period 2008 – 2011

Source: National Bank of Serbia

• Net FDI increased in 2011 due to large investments in equity capital
• The largest amount of FDI came from: Luxembourg, Netherlands, Austria, Italy and France
• Main sectors for FDI inflows were manufacturing, wholesale and retail sector

1,824 1,373 860 1,827 5.6% 4.7% 3.1% 5.9% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2008 2009 2010 2011 FDI (net), millions EUR FDI (net), % GDP (right axis)

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

22 Banking sector by assets (Q4, 2011)

Banking Sector

Source: National Bank of Serbia, Banking Supervision Report

18.6% 22.3% 14.8% 9.9% 8.5% 17.8% 8.0% Austria Italy Greece France Other Foreign Banks State owned banks Domestically owned banks

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Banking Sector

Balance Sheet Structure as of Q4, 2011

Source: National Bank of Serbia, Banking Supervision Report 60.1% 19.3% 5.8% 6.9% 2.9% 5.1%

Asset structure

Realized loans and deposits Callable loans and deposits Cash and cash equivalents Securities and stakes in companies Fixed assets Other assets 13.9% 43.7% 14.6% 7.2% 15.5% 5.7%

• 0.6%

Liabilities and capital structure

Transaction deposits Other deposits Borrowings Other liabilities Share and other capital Reserves Accumulated gains/losses 8.9% 51.3% 29.5% 3.8% 1.7% 4.8%

Bank lending activity by sector

Domestic financial sector Corporate sector Household sector Public sector Foreign enteties Other 5.2% 27.2% 0.9% 1.2% 54.8% 6.4% 0.3% 4.0%

Bank deposits by sector

Domestic banking sector Corporate sector Entrepreneurs Public sector Households Non-residents Private households with employed persons and registred farmers Other clients

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

24 Total Capital Adequacy Ratio and Total Non-Performing Loans (Q4, 2011)

Banking Sector

• Regardless the relatively high share of NPLs, banking sector in Serbia has good capital

adequacy that provides high security for stability of the banking and financial system

Total Capital Adequacy Ratio Total Non-Performing Loans

Source: National Bank of Serbia, Banking Supervision Report 21.3% 21.4% 21.5% 20.7% 20.1% 19.9% 20.4% 19.7% 19.7% 19.1% 18.0% 18.5% 19.0% 19.5% 20.0% 20.5% 21.0% 21.5% 22.0% IX/2009 XII/2009 III/2010 VI/2010 IX/2010 XII/2010 III/2011 VI/2011 IX/2011 XII/2012 Total Capital Adequacy Ratio 17.7% 15.7% 16.5% 17.5% 17.8% 16.9% 17.1% 18.6% 18.8% 19.0% 14.0% 15.0% 16.0% 17.0% 18.0% 19.0% 20.0% IX/2009 XII/2009 III/2010 VI/2010 IX/2010 XII/2010 III/2011 VI/2011 IX/2011 XII/2012 Total Non-Performing Loans

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

25 Consolidated Balance Sheet of the Banking System

Source: National Bank of Serbia

Banking Sector

Assets, EUR millions 2009 2010 2011 2012/V

• I. Foreign Assets

12.354 12.203 13.343 11.963

• f which NBS

10.667 10.077 12.135 10.255

• II. Domestic Credit

14.863 17.544 18.995 19.130

• f which Government

1.242 1.839 1.905 2.154

• f which Companies

7.889 9.111 9.722 9.697

• f which Households

4.828 5.421 5.759 5.618

• III. Other Assets

2.574 2.674 2.750 2.665 Total 29.791 32.422 35.088 33.758

Source: National Bank of Serbia

Liabilities, EUR millions 2009 2010 2011 2012/V

• I. Foreign Liabilities

6.404 7.394 6.939 6.780

• f which NBS

1.195 1.615 1.705 1.741

• II. Government Deposits

1.288 1.217 1.623 1.248

• III. Money Supply M3

12.573 12.899 14.339 13.504

• f which FX Deposits

8.018 9.008 9.676 9.713

• IV. Capital and Reserves

6.079 6.844 7.440 7.646

• V. Restricted Deposits

26 492 513 471

• VI. Other Liabilities

3.420 3.576 4.234 4.109 Total 29.791 32.422 35.088 33.758

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

Fiscal and Economic Policy

26 Central Government Budget, EUR Billions*

Source: Ministry of Finance

* With fiscal 2012 projections by financing source 01, which referrers to Budget Revenues

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 2009 2010 2011 2012p Budget Revenues Budget Expenditures Deficit 0.0 1.0 2.0 3.0 4.0 5.0 6.0 2009 2010 2011 2012p Customs Excises Value added tax (VAT) 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 2009 2010 2011 2012p Financing from privatization revenues Financing from loan repayments Financing from foreign borrowing Financing from domestic borrowing 0.0 0.5 1.0 1.5 2.0 2.5 3.0 2009 2010 2011 2012p Expenditures for acquiring of financial assets Repayment of activated guarantees Repayment of foreign debt Repayment of domestic debt

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

27 Privatization Process

• Due to the volatile global business environment in 2011, revenues from privatization were lower

than in previous years Telekom Srbija

• Privatization of „Telekom Srbija“ - the most profitable state-owned company, did not materialize

in the first half of 2011, because the minimum target price of 1.4 billion EUR was not reached in the bidding process

• In January 2012, the Government bought back 20% of the stock owned by the Greek company

OTE, at the price of 380 million EUR. As a result, Telekom Serbia's ownership has changed and currently the company is entirely domestic owned (Government - 80% stake and other domestic entities - 20%) Steelworks Smederevo

• After the withdrawal of US Steel from Serbia, the Government took over the ownership of the

Steelworks Smederevo in February 2012, with the goal of finding a strategic partner willing to buy a part of or the whole company within six months

• Maintaining the production in the Steelworks of Smederevo is of great importance for the Serbian

economy

• There are also intentions to partially privatize a few other state-owned companies in the coming

years

Fiscal and Economic Policy

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

28 Central Government Debt and Debt/GDP Ratio

• Debt-to-GDP decreased in the period 2005-2008 due to an increase in real GDP growth,

debt write-off (Paris and London Club), debt pre-payments (IBRD, pensioners), regular debt repayments, appreciation of RSD against EUR and USD in 2007 and privatization receipts used to finance the budget deficit

• The declining trend in the public debt to GDP ratio has reversed after 2008 but the

indicator has been sustained at moderate and manageable levels well below the Maastricht criteria

Source: Ministry of Finance

Debt Management

52.2% 37.7% 30.9% 29.2% 34.8% 42.9% 47.7% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 0.0 2,000.0 4,000.0 6,000.0 8,000.0 10,000.0 12,000.0 14,000.0 16,000.0 18,000.0 2005 2006 2007 2008 2009 2010 2011 2012/VI Central Government Debt (millions EUR) Debt/GDP (%, right axis)

Republic of Serbia Ministry of Finance

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Source: Ministry of Finance

Interest Rate Mix Floating Interest Rate Mix External vs. Internal Debt Mix and Currency Structure*

Source: Ministry of Finance

Debt Management

*As of June 30, 2012

• Total Liabilities amounted to EUR 15.3 billion by the end of June 2012

40.2% 59.8% Internal Debt External Debt 17.1% 56.0% 18.1% 1.3% 6.7% 0.8% RSD EUR USD CHF SDR Other* 68.5% 31.5% Fixed interest rates Variable interest rates 73.1% 11.9% 2.1% 12.9% EURIBOR and LIBOR EUR LIBOR USD LIBOR CHF

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

30 Public Debt Maturity Structure*

Source: Ministry of Finance

Debt Management

*As of June 30, 2012

8.4% 7.7% 10.9% 14.9% 16.6% 11.5% 11.3% 18.6% Up to 6 months Between 6 months and 1 year Between 1 and 2 years Between 2 and 5 years Between 5 and 10 years Between 10 and 15 years Between 15 and 20 years Over 20 years

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

31 Public Debt History Graph*

Source: Ministry of Finance

Debt Management

*As of June 30, 2012

Contingencies, EUR millions Direct Liabilities, EUR millions

7,393 5,554 2,000 4,000 6,000 8,000 10,000 12,000 14,000 2005 2006 2007 2008 2009 2010 2011 2012/VI Internal Debt External Debt 1,754 591 500 1,000 1,500 2,000 2,500 2005 2006 2007 2008 2009 2010 2011 2012/VI Internal Debt External Debt

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

32 Contingencies Structure*

Source: Ministry of Finance

Debt Management

*As of June 30, 2012

Contingent Liabilities – Internal Debt Contingent Liabilities – External Debt

Contingencies (EUR, thousands) Internal Debt 590.769 Roads of Serbia 68.892 Srbijagas 380.000 JAT Airways 51.500 Galenika AD 60.000 Other liabilities 30.377 External Debt 1.753.709 Railways of Serbia 294.267 Roads of Serbia 664.943 Electric Power Industry of Serbia 219.544 Flight Control Agency 47.705 Srbijagas 50.000 FIAT 200.000 Local Government 167.020 Other 110.230 Total Contingencies 2.344.479 11.7% 64.3% 8.7% 10.2% 5.1% Roads of Serbia Srbijagas JAT Airways Galenika AD Other liabilities 16.8% 37.9% 12.5% 2.7% 2.9% 11.4% 9.5% 6.3% Railways of Serbia Roads of Serbia Electric Power Industry of Serbia Flight Control Agency Srbijagas FIAT Local Government Other

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

33 Development of the Currency Structure*

Source: Ministry of Finance

• The total debt stock as of June 30th 2012 equals EUR 15.29bn, out of which EUR 12.95bn

were direct and EUR 2.34bn indirect liabilities

• Increased borrowing in domestic currency during 2010 and 2011 reduced the exchange rate

risk exposure

• Serbia seeks to develop its domestic money and capital markets through issuances of

Government securities

• The Eurobond issued in September 2011 increased the portion of the USD debt

*From 2011 Government securities on discount value

Debt Management

2007 2008 2009 2010 2011* 2012/VI Other 2.1% 2.3% 3.0% 2.8% 2.3% 2.1% SDR 4.8% 5.3% 4.8% 7.9% 6.9% 6.7% USD 13.8% 14.5% 13.2% 14.7% 18.8% 18.1% EUR 75.7% 75.4% 66.3% 60.0% 57.6% 56.0% RSD 3.7% 2.6% 12.8% 14.6% 14.4% 17.1% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

34 Marketable Debt: Government Securities

• RSD Denominated Maturities: 6 months, 53 weeks, 18 months, 24 months, 3 year and 5 year

Government securities

• Current issuances - maturities 6 months and 53 weeks ( since March 2011), 18 months (since May

2010), 24 months (since July 2010), 3 year (since March 2011) and 5 year (since January 2012) Government securities

• Introducing different maturities is in line with the plan to gradually extend the benchmark yield curve
• EUR Denominated Maturities: 53 weeks, 18 months, 2 year, 3 year and 15 year Government

securities

• Current issuances maturities: 53 weeks ( since February 2011), 18-month T-Bills (since July 2011), and

3-year (since May 2011), 15-year T-Bonds (since February 2011)

• Maturity profile of the currently outstanding Government securities:

* Nominal value of Government securities, and EUR exchange rate as of June 30, 2012

Debt Management

6.1% 31.9% 26.8% 18.7% 11.9% 1.0% 3.6%

RSD Denominated

6M 53W 18M 24M 36M 60M Inflation linked securities 9.1% 41.1% 16.4% 9.7% 23.7%

EUR Denominated

53W 18M 2Y 3Y 15Y

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

35 Public Debt Repayment Plan* (EUR Millions)

* Based on outstanding debt, as of June 30, 2012

Debt Management

500 1,000 1,500 2,000 2,500 3,000 3,500

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

36

• First successfull Eurobond placement of 10 year bond (USD 1,000,000,000 total par

value) without embedded options

• Semi annual coupon (coupon rate 7.25%, absolute value of half year coupon payment

equals USD 36,250,000)

• Maturity date: September 28th, 2021

Eurobond

Source: Bloomberg

$0 $200,000,000 $400,000,000 $600,000,000 $800,000,000 $1,000,000,000 $1,200,000,000

Eurobond repayment plan

Principal Interest

Debt Management

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

37 Eurobond Yield Comparison

Source: Bloomberg

Debt Management

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 22/09/2011 27/09/2011 30/09/2011 05/10/2011 10/10/2011 13/10/2011 18/10/2011 21/10/2011 26/10/2011 31/10/2011 03/11/2011 08/11/2011 11/11/2011 16/11/2011 21/11/2011 24/11/2011 29/11/2011 02/12/2011 07/12/2011 12/12/2011 15/12/2011 20/12/2011 23/12/2011 29/12/2011 03/01/2012 06/01/2012 11/01/2012 16/01/2012 19/01/2012 24/01/2012 27/01/2012 01/02/2012 06/02/2012 09/02/2012 14/02/2012 17/02/2012 22/02/2012 27/02/2012 01/03/2012 06/03/2012 09/03/2012 14/03/2012 19/03/2012 22/03/2012 27/03/2012 30/03/2012 04/04/2012 09/04/2012 12/04/2012 17/04/2012 20/04/2012 25/04/2012 30/04/2012 03/05/2012 08/05/2012 11/05/2012 16/05/2012 21/05/2012 24/05/2012 29/05/2012 01/06/2012 06/06/2012 11/06/2012 14/06/2012 19/06/2012 22/06/2012 27/06/2012 Belarus 01/26/2018 Bulgaria 01/15/2015 Croatia 03/24/2021 Latvia 06/16/2021 Serbia 09/28/2021 Hungary 03/29/2021 Lithuania 02/01/2022

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

38 Indebtedness of Households and Companies

Source: National Bank of Serbia

• Due to domestic currency appreciation in the first half of the 2011, and lower growth of

credit activities with loan repayments towards abroad, indebtedness of companies and households slightly decreased

Debt Management

15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 2005 2006 2007 2008 2009 2010 2011 Companies Debt, % GDP 5.0% 10.0% 15.0% 20.0% 25.0% 2005 2006 2007 2008 2009 2010 2011 Household Debt, % GDP

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

39

• The primary objective is to manage government debt efficiently and effectively and to meet the

Government borrowing needs under an acceptable level of risk in mid to long term

• Basic principles:

– Cautious and prudent debt management – Transparent and predictive borrowing and debt management – Promotion of liquidity and broadening the government securities investor base and development of an efficient infrastructure in the domestic capital market

• The borrowing requirements are determined by the budget deficit and the borrowing criteria by

the existing debt portfolio, that are defined by The Budget Law of The Republic of Serbia for year 2012

• The Public Debt Administration is actively involved in development and improvement of local

currency government securities market, in accordance with strategy of empowerment of local currency, which will cause a decrease of interest rates and currency risk.

• Furthermore, PDA is analyzing relevant market data, especially the effects of changes of

EUR/RSD and USD/RSD exchange rates, which may cause a change in debt market approach

• Debt Management Strategy is a part of the Economic and Fiscal Program of the Republic of

Serbia Government Debt Management Strategy 2011-2013

Debt Management

Republic of Serbia Ministry of Finance

Republic of Serbia – Ministry of Finance

• www.mfin.gov.rs (Republic of Serbia, Ministry of Finance)
• www.trezor.gov.rs (Republic of Serbia, Ministry of Finance, Treasury)
• www.nbs.rs (National Bank of Serbia)
• www.stat.gov.rs (Statistical Office of Serbia)
• www.epp.eurostat.ec.europa.eu (Eurostat)
• www.imf.org (International Monetary Fund)
• www.standardandpoors.com (Standard and Poor’s Rating Agency)
• www.bloomberg.com (Bloomberg market data service)
• www.fitchratings.com (Fitch Ratings Agency)
• Should you have any questions concerning this presentation please refer to:

investors.info@trezor.gov.rs info@javnidug.gov.rs

40

References