REPUBLIC OF SERBIA Ministry of Finance I NVESTOR P RESENTATION A - PowerPoint PPT Presentation

REPUBLIC OF SERBIA Ministry of Finance I NVESTOR P RESENTATION A UGUST 2018

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  7.0 million (1,2) Population: Belgrade Kragujevac  GDP per capita: EUR 5.386 (1,2)  Nominal GDP: EUR 37.7bn (1,2,3) SERBIA  Nis Credit ratings: BB/BB/Ba3  Currency: Serbian Dinar (RSD)  EUR/RSD = 118.0705 (3) Current exchange rate: USD/RSD = 102.1813 (3) 1 National Statistics Office as of 2017, Minstry of finance as of 2017, 2 Excluding Kosovo and Metohija, 3 NBS as of 23 August 2018 Recent Milestones and Progress to EU accession Serbia opened Serbia opened Serbia opened chapters 6 and Serbia started EU chapters 23 and 24 in chapters 20 and 26 30 in the accession the process of EU in the process of EU process of EU negotiations accession accession accession Dec Dec Dec Feb Jan July June June 2006 2008 2009 2011 2012 2015 2017 2016 2014 2017 2017 2018 2016 Serbia opened Serbia opened Serbia opened Serbia opened EU candidate chapters 5 and 25 chapters 32 and 35 chapters 7 and 29 in chapters 13 and 33 status awarded in the process of the process of EU in the process of in the process of EU EU accession accession EU accession accession 3

Serbia’s Rating In Comparative Perspective June-18 June-17 Change June-18 June-17 Change June-18 Change Serbia BB BB- BB BB- Ba3 Bulgaria BBB- BB+ BBB BBB- Baa2 no change Croatia BB+ BB+ no change BB+ BB+ no change Ba2 no change Baa3 no change Hungary BBB- BBB- no change 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- A- A- no change A3 no change Credit Rating History  Standard and Poor's – In June 2018, Standard and Poor's kept the credit rating of the Republic of Serbia at the level of BB, with the positive outlook for improving the credit rating. According to the Standard and Poor's the Serbian economy is likely to expand in 2018-2019 with average rates of 3% or higher, driven by stronger private sector consumption supported by expanding employment, wage growth, and a stable inflow of worker remittances. In the light of macroeconomic stabilization and higher investor confidence, higher inflow of FDI is also expected to boost economic growth.  Fitch Ratings – In June 2018, Fitch Ratings has left unchanged the Republic of Serbia long- and short-term foreign and local currency sovereign credit ratings at level 'BB'. The outlook is stable. Serbia's ratings are supported by strong governance, human development and ease of doing business indicators, as well as a strengthened economic policy framework that has increased confidence that macroeconomic fundamentals have improved. According to Fitch, Serbia is projected to grow by 3.5% in 2018 and 3.3% in 2019. Investment and household consumption, supported by positive developments in the labour market, are expected to be the main drivers of growth for 2018-2019.  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 Real GDP Growth (Y-o-Y) • In 2016 and 2017 the Republic of Serbia marked 2.8% and 1.9% GDP 39 4% growth, respectively, while estimated growth for 2018 is 3.5%. 1.9% 38 2.8% 3% 2.6% • GDP growth accelerated to 4.5% y-o-y in H1 2018, on the back of robust 37 36 1.4% 2% investment activity - both private and government. 35 0,7% 1% -1.8% • 34 In the first six months of 2018 exports of goods expressesd in EUR 33 0% -1.0% increased by 7.6% in value terms over the corresponding 2017 period, 32 37.7 33.4 34.3 34.1 -1% while imports of goods increased by 11.7%. 31 32.9 30 31.7 • -2% Exports of reproduction products in H1 2018 had the leading 58.0% share 29 33.3 28 -3% followed by consumer goods 31.3%, and equipment 10.7% share. 2011 2012 2013 2014 2015 2016 2017 • In H1 2018 the export-import ratio was on the level of 76.3%, while in 2017 was 79.2%. GDP, EUR bn GDP growth rate Source: National Statistics Office, Ministry of Finance Real GDP Growth 2011 – 2017 (Y-o-Y) Exports of Goods – Nominal Growth (Y-o-Y) 10 30% 8 26.0% 25% 6 Serbia Romania 4 20% Bulgaria 2 13.1% 15% Croatia 11.5% 0 10% Hungary 7.6% 7.8% -2 5% 3.8% -4 1.4% 2012 2013 2014 2015 2016 2017* 0% 2012 2013 2014 2015 2016 2017 Jun-18 Source: Eurostat Source: National Statistics Office, National Bank of Serbia *Preliminary Data 6

External Position Foreign Exchange Reserves (mln EUR) • 12.0 At the end of July 2018 Serbia had a level of FX reserves at EUR 11.4bn (about 6 months of imports coverage) and net reserves at EUR 11.4 11.5 11.2 9.5bn which provide a good cushion for the Serbian external position 10.9 11.0 • At the end of March 2018 external debt stood at EUR 25.4bn, including 10.4 private sector external debt of EUR 11.7bn 10.5 • During 2016 and 2017 EUR/RSD exchange rate showed limited 9.9 10.0 volatility. In 2016 and 2017 the average exchange rate EUR/RSD was 123.1 and 121.3 respectively, while in the first seven months of 2018 9.5 the average exchange rate EUR/RSD was 118.3 9.0 2012 2013 2014 2015 Jul-18 Source: National Bank of Serbia Exchange rate EUR/RSD (July 2017 – July 2018) Exchange Rate USD/RSD (July 2017 – July 2018) 121.0 126.0 118.0 124.0 115.0 112.0 122.0 109.0 120.0 106.0 103.0 118.0 100.0 116.0 97.0 94.0 114.0 91.0 112.0 88.0 85.0 110.0 Source: National Bank of Serbia Source: National Bank of Serbia 7

Trade Balance Balance of Payments (% of GDP) • Current account deficit in 2017 reached 5.7% of GDP, due to imports Net FDI Current Account of capital and intermediate goods related to investment activity, as well 8.0% as due to supply-side shocks in energy sector and agriculture. In 2018 6.0% it is expected CAD share in GDP to remain on the same level as in 4.0% 2017. 6.9% 6.6% 5.4% 5.5% 2.0% 3.7% • In the medium term, it is expected the CAD deficit to be around 4-5% 0.0% -3.7% of GDP and to be fully covered by the FDIs. -2.0% -3.1% -5.7% -5.7% -6.0% -4.0% • During H1 2018 net FDI reached 6.9% of GDP (EUR 1.3bn; +8.6% -6.0% y/y). Inflows were mostly concentrated in export industries. CAD/FDI -8.0% 2014 2015 2016 2017 2018* coverage stands at 128.5% in H1 2018. Source: National Statistics Office, National Bank of Serbia *Estimated Trade Deficit (% of GDP) External Trade as (% of GDP) Export Import 55.8% 60% 7.0 21.0% 51.2% 18.8% 49.8% 51.0% 46.8% 19.0% 50% 45.1% 6.0 42.6% 40.1% 39.4% 17.0% 36.6% 13.3% 5.0 40% 13.0% 33.6% 13.0% 32.1% 11.6% 11.1% 13.2% 15.0% 4.0 5.9 30% 13.0% 3.8 3.0 20% 11.0% 2.0 4.5 4.4 4.0 4.3 9.0% 10% 2.4 1.0 7.0% 0% 2013 2014 2015 2016 2017 Jun-18 0.0 5.0% 2012 2013 2014 2015 2016 2017 Jun-18 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-June 2018 Export of Goods Import of Goods EU 20% 25% EU WBCs* APEC* 50% MEDA** CIS** Other 54% 13% Other 8% 17% 13% Source: National Statistics Office Source: National Statistics Office *Asia Pacific Economic Cooperation *Western Balkan countries + Moldova = parties to CEFTA **Commonwealth of Independent States **Mediterranean countries in the Euro-Mediterranean Partnership Export of Goods Import of Goods Germany Italy Germany Italy 15% 14% Bosnia and Herzegovina China 47% 11% Russian Federation 47% 13% Russian Federation Romania 9% 8% Hungary Montenegro 8% 6% Turkey, Republic of 6% 4% Others 6% 5% Others Source: National Statistics Office Source: National Statistics Office 9