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

Ministry of Finance

INVESTOR PRESENTATION SEPTEMBER 2017

REPUBLIC OF SERBIA

• 1. Republic of Serbia – Overview
• 4. Fiscal Policy and Debt Management Strategy
• 3. Banking Sector
• 2. Macroeconomic Background

Serbia at a Glance

Key Facts

Resilient economy on the path to full integration with Europe



Form of Government: Parliamentary Republic



Territory: 88,361 sq. km



Capital: Belgrade



Population: 7.1 million(1,2)



GDP per capita: EUR 4.971(1,2)



Nominal GDP: EUR 35.3bn(1,2)



Credit ratings: BB-/BB-/Ba3



Currency: Serbian Dinar (RSD)



Current exchange rate: EUR/RSD = 119.0326 (3) USD/RSD = 99.9182 (3)

Vilnius

EU Non-EU

SERBIA

Nis Kragujevac Novi Sad

Belgrade

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

EU membership application Responses to the European Commission’s Questionnaire

2008 2006 2009 2011

2009 2011 2012

EU candidate status awarded EC agrees to start Serbia’s EU accession negotiations in January 2014

2013

3

Jan 2014

Serbia started EU accession negotiations

Nov 2014 Dec 2015

Serbia opened chapters 32 and 35 in the process of EU accession

July 2016

Serbia opened chapters 23 and 24 in the process of EU accession

Dec 2016

Serbia opened chapters 5 and 25 in the process of EU accession

Feb 2017 June 2017

Serbia opened chapters 20 and 26 in the process of EU accession Serbia opened chapters 7 and 29 in the process of EU accession Serbia reached IMF agreement

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 Hungary BBB- BB+ BBB- BBB- no change Baa3 no change Romania BBB- BBB- no change BBB- BBB- no change Baa3 no change Latvia A- A- no change A- A- no change A3 no change Lithuania A- A- no change A- A- no change A3 no change

Serbia’s Rating In Comparative Perspective

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
• 4. Fiscal Policy and Debt Management Strategy
• 3. Banking Sector
• 2. Macroeconomic Background

Exports Have Been A Major Driver Of Economic Growth

Source: National Statistics Office, Ministry of Finance *Projected Source: Eurostat

Real GDP Growth (Y-o-Y) Real GDP Growth 2011 – 2016 (Y-o-Y)

• In 2016 the Republic of Serbia marked 2.8% growth, while estimated growth

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,

while domestic and foreign demand provided a boost to growth. In Q2 2017 GDP growth was 1.3% on the basis of mining and energy sector recovery, and good manufacturing performance.

• In the coming period 2017 GDP growth is expected to step up primarily on

the basis of demand recovery, FDI, capital spending, and structural reforms.

• In the first seven months of 2017 exports of goods increased by 13.2% in

value terms over the corresponding 2016 period, while imports of goods increased by 13.1%.

• 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% share and plastic products 8.0% share in total exports (in EUR terms).

• In the first seven months of 2017 the export-import ratio was on the level of

77.7%, while in 2016 was 77.6%.

Source: National Statistics Office, National Bank of Serbia

Exports of Goods – Nominal Growth (Y-o-Y)

6

• 3
• 2
• 1

1 2 3 4 5 6 2012 2013 2014 2015 2016 Serbia Romania Bulgaria Croatia Hungary *Preliminary Data 3,8% 26,0% 1,4% 7,8% 11,5% 13,2% 0% 5% 10% 15% 20% 25% 30% 2012 2013 2014 2015 2016 Jul-17 33,4 31,7 34,3 33,3 32,9 34,1 35,3 1,4%

• 1,0%

2,6%

• 1,8%

0,7% 2,8% 3,0%

• 3%
• 2%
• 1%

0% 1% 2% 3% 4% 29 30 31 32 33 34 35 36 2011 2012 2013 2014 2015 2016 2017* GDP, EUR bn GDP growth rate

External Position

Exchange Rate USD/RSD (August 2016 – August 2017) Exchange rate EUR/RSD (August 2016 – August 2017)

Source: National Bank of Serbia Source: National Bank of Serbia Source: National Bank of Serbia

• At the end of August 2017 Serbia had a level of FX reserves at EUR

10.3bn (about 6 months of imports coverage) and net reserves at EUR 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

private sector external debt of EUR 10.7bn

• During 2015 and 2016 EUR/RSD exchange rate showed limited
• volatility. In 2015 and 2016 the average exchange rate EUR/RSD was

120.7 and 123.1 respectively, while in the first eight months of 2017 was 122.5

Foreign Exchange Reserves (mln EUR)

7

10,9 11,2 9,9 10,4 10,3 9,0 9,5 10,0 10,5 11,0 11,5 2012 2013 2014 2015 Aug-17

110,0 112,0 114,0 116,0 118,0 120,0 122,0 124,0 126,0 85,0 90,0 95,0 100,0 105,0 110,0 115,0 120,0 125,0

Trade Balance

Balance of Payments (% of GDP)

Source: National Statistics Office, National Bank of Serbia Source: National Statistics Office

Trade Deficit (% of GDP)

Source: National Statistics Office, National Bank of Serbia;* forecast

External Trade as (% of GDP)

• Current account deficit in 2016 reached historical minimum level of

4.0% of GDP, while estimated CAD in 2017 and 2018 is established at level of 3.9% and 3.7% of GDP, respectively

• In 2016 CAD was about 13.1% less compared to 2015 mainly due to

significant improvement in trade balance

• The significant growth rates in 2017 were recorded in export of basic

metals (+48%), paper and paper products (+26%), rubber and plastic products(+23%) and coke and refined petroleum products (+22%) comparing to last year

• Strong FDI inflows in export-oriented sectors, will stay more than

sufficient to cover the CAD

8 5,9 4,5 4,3 4,4 4,0 2,5 18,8% 13,0% 13,0% 13,3% 11,6% 12,1% 5,0% 7,0% 9,0% 11,0% 13,0% 15,0% 17,0% 19,0% 21,0% 0,0 1,0 2,0 3,0 4,0 5,0 6,0 7,0 2012 2013 2014 2015 2016 Jul-17 Trade deficit (EUR bn) Trade deficit (% of GDP)

• 6,1%
• 6,0%
• 4,7%
• 4,0%
• 3,9%

2,2% 1,4%

• 1,8%

3,8% 3,7% 5,4% 5,5% 4,5%

• 8,0%
• 6,0%
• 4,0%
• 2,0%

0,0% 2,0% 4,0% 6,0% 8,0% 2013 2014 2015 2016 2017* Net FDI Financial Account ex. FDI Current Account 27,6% 32,1% 33,6% 36,6% 39,4% 42,2% 46,5% 45,1% 46,8% 49,8% 51,0% 54,4% 0% 10% 20% 30% 40% 50% 60% 2012 2013 2014 2015 2016 Jul-17 Export Import

Serbia’s Exports and Imports in Jan-July 2017

Import of Goods Import of Goods Export of Goods

Source: National Statistics Office Source: National Statistics Office

Export of Goods

Source: National Statistics Office Source: National Statistics Office 9 67% 7% 16% 10% EU CIS MEDA Other 63% 10% 7% 20% EU CIS MEDA Other 14% 13% 8% 6% 5% 5% 49% Italy Germany Bosnia and Herzegovina Russian Federation Romania Montenegro Others 13% 10% 8% 7% 5% 4% 53% Italy Germany China Russian Federation Hungary Poland Others

…And By Types Of Products

Source: National Statistics Office

Export Jan-July 2017 (FOB) Import Jan-July 2017 (CIF)

Source: National Statistics Office

External Trade as % GDP

• Serbia’s exports are reasonably diversified, covering the full range of

products from intermediate inputs, to consumer and capital goods

• This confirms that Serbia is already being integrated into the

European trade system and is able to export goods to multinational companies operating in the global supply chain

• Intermediate and capital goods have been the fastest growing export

product categories in period 2011-2017, one of the positive results of the direct foreign investment that Serbia has attracted in recent years due to the Government of Serbia subsidy program

• The automobile industry as the main Serbian’a export sector

continues to grow. Export of steel products are growing by 92.8% yoy

Source: National Statistics Office 10 2% 38% 24% 5% 22% 9% Energy Intermediate goods Capital goods Durable consumer goods Non durable consumer goods Unclassified by MIG destination 10% 35% 21% 2% 14% 18% Energy Intermediate goods Capital goods Durable consumer goods Non durable consumer goods Unclassified by MIG destination 27,6% 32,1% 33,6% 36,6% 39,4% 42,2% 46,5% 45,1% 46,8% 49,8% 51,0% 54,4% 0% 10% 20% 30% 40% 50% 60% 2012 2013 2014 2015 2016 Jul-17 Export Import

Foreign Direct Investments

Net FDI Diversification by Geography (Q1 2017) Net FDI Diversification by Sector (Q1 2017) Net Foreign Direct Investment (EUR mln)

• NFDI’s in 2016 reached the level of EUR 1.9bn. The FDI/CAD

coverage for 2016 stood at 135.8%. The biggest FDIs were in manufacturing sector (rubber production, motor vehicles, food production), financial sector, construction, retail trade sector, telecommunication and IT sector

• Estimated level of NFDI’s for 2017 stands at EUR 1.6bn. In the first

six months of 2017, net FDI inflow stood at EUR 1.0bn

• FDI projection for the coming years also envisages full coverage of

CAD

• Air Serbia improved performance of the Belgrade Airport Nikola

Tesla which became very attractive to potential investors

• Serbia improved the position on the World Bank’s Doing Business

List 2017 and ranked at the 47th position in comparison to previous 54th in 2016 (one of the ten most-improved countries)

Source: National Bank of Serbia Source: National Statistics Office; National Bank of Serbia Source: National Statistics Office, National Bank of Serbia *2012 data affected by Telekom Srbija’s buyback of its Treasury shares from OTE (EUR 380m) 11 25,0 8,7 7,7 5,7 5,6 5,4 4,5 4,4 3,9 3,6 0,0 5,0 10,0 15,0 20,0 25,0 30,0 26,9% 8,2% 10,4% 5,6% 19,2% 3,5% 14,0% 12,2% Manufacturing Wholesale and retail trade Construction Real estate activities Financial intermediation Professional, scientific and technical activities Information and communication Other 3.320 753 1.298 1.236 1.804 1.861 992 500 1000 1500 2000 2500 3000 3500 2011 2012 2013 2014 2015 2016 Jun-17

Inflation in the Target Band in the first half of 2017

Source: National Bank of Serbia Source: National Bank of Serbia Source: National Bank of Serbia

• Inflation has been moving below the target tolerance band since March

2014 mainly due to movements in food and oil prices

• From the begining of the 2017 inflation has moved within the target

tolerance band, and it is expected to stay in the period ahead. Core inflation is low, amounting 1.5% in August 2017

• During 2015, the NBS gradually reduced its key policy rate (KPR) by

350 bps and at the end of December 2015 KPR was at the level of 4.50%, during 2016 NBS reduced KPR for additional 50 bps to the level

• f 4.00% in July 2016, meanwhile in 2017 NBS reduced KPR for

additional 25 bps to the level of 3.75% in September 2017

• NBS reduced inflation target to the level of 3.00%±1.50% (starting from

January 2017)

Y-o-Y Inflation eop Key Policy Rate and Money Supply Contribution of CPI Components to Y-o-Y Inflation (%)

12

• 8
• 3

2 7 12 17 Services Energy Industrial goods excluding food and energy Processed food Unprocessed Food

• 10,0%
• 5,0%

0,0% 5,0% 10,0% 15,0% 20,0% 25,0% 30,0% 0,0% 2,0% 4,0% 6,0% 8,0% 10,0% 12,0% 14,0% Key Policy Rate (left axis) M2 (YoY) (right axis) 7,0% 12,2% 2,2% 1,7% 1,5% 1,6% 2,5% 0,0% 2,0% 4,0% 6,0% 8,0% 10,0% 12,0% 14,0% 2011 2012 2013 2014 2015 2016 Aug-17

• 1. Republic of Serbia - Overview
• 4. Fiscal Policy and Debt Management Strategy
• 3. Banking Sector
• 2. Macroeconomic Background

Banking Sector Overview

Source: National Bank of Serbia *latest available comparable data, Q1 2017 Source: National Bank of Serbia

Asset Structure Liabilities and Capital Structure Consolidated Balance Sheet of the Banking Sector

14 Source: National Bank of Serbia Source: National Bank of Serbia *latest available comparable data, Q1 2017 55% 18% 13% 7%2% 5%

Loans and receivables from clients Financial assets available for sale Currency and deposits with the central bank Loans and receivables from banks and other financial

• rganisations

Fixed assets

8% 69% 1% 13% 6% 3% Deposits to banks, OFO and the central bank Deposits to other customers Subordinated liabilities Share capital and other capital Reserves and unrealised losses Profit Other

Assets 2012 2013 2014 2015 2016 Jul-17

• I. Foreign Assets

35.7% 36.2% 35.2% 34.1% 33.1% 31.9% Of which NBS 31.4% 32.8% 28.9% 29.3% 27.8% 26.8%

• II. Domestic credit

56.6% 56.% 56.9% 58.1% 58.5% 59.8%

• f which Government

7.3% 8.6% 10.9% 12.4% 14.0% 14.0%

• f which Companies

28.1% 25.7% 23.2% 22.9% 22.1% 22.3%

• f which Households

16.4% 17.1% 17.3% 17.5% 18.4% 19.7% Others 4.8% 4.6% 5.5% 5.3% 4.0% 3.8%

• III. Other Assets

7.8% 7.8% 7.8% 7.8% 8.4% 8.3% Total Assets (EUR bn) 35.0 34.4 34.6 35.7 37.2 37.5 Liabilities 2012 2013 2014 2015 2016 Jul-17

• I. Foreign Liabilities

18.8% 14.7% 10.5% 9.1% 7.8% 7.9%

• II. Government depostis

4.9% 7.3% 8.0% 7.3% 6.6% 7.7%

• III. Currency in

circulation 2.8% 3.1% 3.1% 3.2% 3.5% 3.2%

• IV. RSD deposits

9.3% 10.8% 11.6% 13.0% 14.2% 14.2%

• V. FX deposits

29.2% 29.7% 29.9% 29.9% 30.4% 30.7%

• VI. Other Liabilities

35.0% 34.4% 37.0% 37.5% 37.5% 36.3% Total Liabilities (EUR bn) 35.0 34.4 34.6 35.7 37.2 37.5

A Strong Capital Cushion Offsets Relatively High NPLs

Source: National Bank of Serbia Source: National Bank of Serbia Source: National Bank of Serbia

Credit Growth Y-o-Y Capital Adequacy Ratio and NPL’s (%) Banking Sector Ownership by Assets (Q1, 2017)

15

• At the end of December 2016 CAR stands at high level of 21.8%,

mainly due to recapitalization, higher reserves from capital and lower capital requirements for credit risk

• NPLs are fully covered by balance sheet loan loss reserves. IFRS

provision (68.5% in December 2016) cover more than half of NPLs. Among others, NBS regulatory measures allow the sale of NPLs to non financial entities and better tax treatment on restructured debt

• The share of NPLs has a downward trend - at July 2017 it stood at

15.2%, 7.0% pp lower since NPL Resolution Strategy was adopted

• Liquidity ratio of the banking system is higher than the regulatory limit

(2.2 in July 2017) and liquid assets represent 38.0% of total assets at the end of July 2017

• The loan to deposit ratio for the banking sector remains on a

conservative low level 0.92 in July 2017

18,6% 21,4% 21,5% 21,6% 17,0% 15,2% 19,9% 20,9% 20,0% 20,9% 21,8% 22,4% 15,0% 16,0% 17,0% 18,0% 19,0% 20,0% 21,0% 22,0% 23,0% 2012 2013 2014 2015 2016 Jul-17 NPL's CAR

• 15,0%
• 10,0%
• 5,0%

0,0% 5,0% 10,0% 15,0% 20,0% 25,0% 30,0%

Loans to households Loans to enterprises Total loans 15,5% 27,0% 12,2% 10,1% 11,7% 23,5% Austria Italy Greece France Other foreign banks Domesticaly owned banks

• 1. Republic of Serbia - Overview
• 4. Fiscal Policy and Debt Management Strategy
• 3. Banking Sector
• 2. Macroeconomic Background

Fiscal Policy Measures – New IMF Agreement

Fiscal consolidation measures and structural changes for 2017: – Reform of tax administration and public revenue system – Reform of public enterprises – Public administration reform and rightsizing – Improvement of capital expenditure planning and realization – Business environment improvement

• Central

Government budget surplus 0.1% GDP and General Government budget deficit 1.3% GDP in 2016

• Seven successful IMF program reviews during period 2015 - 2017

Source: Ministry of Finance Source: Ministry of Finance * projected Source: Ministry of Finance

Consolidated Fiscal Balance (% of GDP) Central Government Budget (RSD bn) Tax Revenues (as % of GDP)

17

• 1,5% -1,9%
• 2,6%
• 4,4%
• 4,6% -4,8%
• 6,8%
• 5,5%
• 6,6%
• 3,7%
• 1,3%

2,8%

• 8,0%
• 6,0%
• 4,0%
• 2,0%

0,0% 2,0% 4,0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Jul-17 0% 5% 10% 15% 20% 25% 2011 2012 2013 2014 2015 2016 Other tax revenues Duties Profit tax Personal income tax Excises VAT 788 812 881 948 1042 1093 980 986 1128 1063 1037 1162

• 192
• 174
• 247
• 115

5

• 69
• 400
• 200

200 400 600 800 1000 1200 1400 2012 2013 2014 2015 2016 2017* Revenues Expenses Balance

 The IMF completed the first review of Serbia’s economic performance under the SBA on 26 June 2015 – The economy has stabilized, inflationary pressures remained subdued, the external position has strenghtened and credit growth remained slow  The IMF completed the second review of Serbia’s economic performance under the SBA on 23 October 2015 – The economic growth has remained positive despite the significant fiscal tightening, the current account deficit has narrowed to a sustainable level, confidence has improved and gradual easing of monetary policy by the NBS has been appropriate in view of still low inflation  The IMF completed the third review of Serbia’s economic performance under the SBA on 18 December 2015 – The economy has continued to recover on the back of efforts to strengthen public finances, address structural weaknesses and improve the business climate  The IMF completed the fourth and fifth reviews of Serbia’s economic performance under the SBA on 31 August 2016 – Serbia’s economic recovery has exceeded expectations, supported by efforts to strengthen public finances, advance structural reforms and boost investment confidence, while authorities indicated their intention to continue treating the arrangement as precautionary  The IMF completed the sixth review of Serbia’s economic performance under the SBA on 16 December 2016 – Serbia’s economy continues to strengthen, supported by the efforts to improve public finances and address structural weaknesses. Employment is rising, inflation remains firmly under control, and public debt has started to decline. Significant progress has been made on fiscal consolidation, on account of strong revenue and on-going expenditure control  The IMF completed the seventh review of Serbia’s economic performance under the SBA on 30 August 2017 – Serbia’s economy has strengthened with strong revenue performance, monetary policy has succeeded in keeping inflation under firm control, as well as business environment has strengthened. Economic growth is expected to reach 3% this year and the fiscal deficit should narrow to 1.1% of GDP

Serbia Reiterates the Importance of Cooperation with the IMF

18

Completed first review of Serbia’s Stand-By Arrangement Completed second review of Serbia’s Stand-By Arrangement

2008 2006 2009 2011 June 2015 Oct 2015 Dec 2015

Completed third review of Serbia’s Stand-By Arrangement Completed fourth and fifth reviews of Serbia’s Stand-By Arrangement

Aug 2016 Dec 2016

Completed sixth review

• f Serbia’s Stand-By

Arrangement

Aug 2017

Completed seventh review of Serbia’s Stand-By Arrangement

Active Debt Management Has Produced Stable Funding Base

Total foreign debt 61% Total domestic debt 39%

Other 15% IMF, 2% IDA, 1% Paris Club, 5% IBRD, 8% Other 2 % T-bills and T-bonds 35% Frozen FX bonds 2% Guaranteed external debt 7% Eurobond, 19% EIB, 4%

Source: Ministry of Finance Source: Ministry of Finance Source: Ministry of Finance Source: Ministry of Finance *In accordance with the Fiscal Strategy for 2017 with projections for 2018 and 2019

Public Debt Public Debt Service (RSD bn) Description of the Debt Structure (As of 31 August 2017) Development of the Currency Structure

19 1547,5 2014,8 2309,0 2753,2 3018,6 3064,6 2839,4 45,4% 56,2% 59,6% 70,4% 76,0% 72,9% 64,6% 25,0% 35,0% 45,0% 55,0% 65,0% 75,0% 85,0% 0,0 500,0 1000,0 1500,0 2000,0 2500,0 3000,0 3500,0 2011 2012 2013 2014 2015 2016 Aug-17 Public debt (in RSD bn) Public debt (% of GDP) 18,3% 20,3% 21,4% 22,2% 20,9% 22,1% 51,0% 45,9% 41,7% 39,8% 39,7% 41,5% 23,1% 27,7% 31,5% 32,9% 33,9% 31,2% 5,7% 4,6% 4,2% 3,9% 3,7% 3,4% 1,9% 1,5% 1,2% 1,2% 2,0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2012 2013 2014 2015 2016 Aug-17 Other SDR USD EUR RSD 1,8,%

125 139,9 151,6 157 501 567,6 702,7 668,6 100 200 300 400 500 600 700 800 900 2015 2016 2017* 2018* Interest Principal

(RSD bn)

Debt Mix and Currency Structure

Source: Ministry of Finance, as of 31 August 2017 Source: Ministry of Finance, as of 31 August 2017 Source: Ministry of Finance, as of 31 August 2017 *Internal Debt – All currencies Debt on the Domestic market ** External Debt – All currencies Debt on the International market 0,5% 1,3% Source: Ministry of Finance, as of 31 August 2017

*Internal vs **External Debt Interest Rate Mix Currency Breakdown Public Debt Residual Maturity Structure

20 61,0% 39,0% Total foreign debt Total domestic debt 80,1% 19,9% Fixed interest rate Variable interest rate 22,1% 41,5% 31,2% 3,4% RSD EUR USD CHF SDR Others 8,9% 10,7% 13,6% 24,3% 5,7% 10,8% 11,1% 5,9% 9,0% Up to 6 months Between 6 months and 1 year Between 1 and 2 years Between 2 and 5 years Between 5 and 7 years Between 7 and 10 years Between 10 and 15 years Between 15 and 20 years Over 20 years

Government Financing Needs 2017

Source: Ministry of Finance Source: Ministry of Finance

• The improvement in fiscal position of the Government decreased the

level of gross financing needs in 2016 and 2017

• Total financing needs in 2017 are EUR 6.8bn of which EUR 1.6bn for

buy-back operations while in 2016 were EUR 4.0bn, due to significantly lower budget deficit than initially planned

• Financing plan for 2017:

√ EUR 4.7bn government securities domestic market, of which: * EUR 3.1bn denominated in dinars * EUR 1.6bn denominated in euros √ EUR 1.0bn Eurobond √ EUR 0.4bn IBRD √ EUR 0.4bn Abu Dhabi Emirate concessional loan √ EUR 0.3bn other sources

• February and July 2016, 3Y RSD and 7Y RSD 110bn benchmark

bonds issued, as well as 3Y RSD 110bn benchmark in April 2017

• Improved secondary market trading of government dinar securities due

to benchmark size issues

• In the first seven months of 2017 Government recorded budget surplus

60.1bn RSD and General Government budget surplus 73.5bn RSD

Maturity Distribution of Local Currency Government Securities (As of 31 August 2017) Maturity Distribution of EUR Denominated Government Securities (As of 31 August 2017)

21 2% 18% 41% 8% 30% 1% 53W 2Y 3Y 5Y 7Y 10Y 6% 21% 25% 27% 14% 7% 53W 2Y 3Y 5Y 10Y 15Y

Government Securities – Domestic Market

Source: Ministry of Finance Source: Ministry of Finance 22

RSD securities-domestic market (Jan-Aug 2017) EUR securities-domestic market (Jan-Aug 2017) ATM of Government securities RSD weighted average accepted rate on primary auctions

Source: Ministry of Finance Source: Ministry of Finance

10 20 30 40 50 60 70 80 90 6M 53W 2Y 3Y 5Y 7Y

RSD Billions

Redemptions New Issuance

• 50

100 150 200 250 300 53W 2Y 3Y 5Y 10Y

EUR Millions

Redemptions New Issuance

2,4 3,3 1 2 3 4 5 6 In years ATM RSD Securities ATM EUR Securities 2,64% 3,48% 4,69% 4,95% 5,61% 2,78% 3,13% 3,93% 4,78% 5,38% 5,68% 5,83% 4,96% 4,42% 5,94% 7,06% 8,62% 6,50% 11,99% 7,35% 7,54% 8,49% 9,21% 10,16% 10,93% 12,99% 9,52% 9,38% 10,10% 10,71% 11,02% 12,15% 12,49% 12,39% 11,95% 13,04% 14,13% 15,21% 14,74% 1,00% 3,00% 5,00% 7,00% 9,00% 11,00% 13,00% 15,00% 3М 6M 53Н 2Г 3Г 5Г 7Г 10Г 2017 2016 2015 2014 2013 2012