ANALYSIS OF THE REPUBLIC OF SERBIA S DEBT. June 2011

Transcription

1 ANALYSIS OF THE REPUBLIC OF SERBIA S DEBT June Belgrade, August

2 Analysis of the Republic of Serbia s debt А. External debt At end-june, external debt of the Republic of Serbia totalled EUR 22.7 bln, up by EUR 62.5 mln from end-march. External debt of the public sector rose EUR mln, while that of the private sector fell by EUR mln. Due to exchange rate differentials, notably appreciation of the euro against the dollar and SDRs in Q2, external debt declined by EUR 13.6 mln, resulting in lower debt growth in nominal terms. The largest portion of external debt (77.3%) was denominated in euros. The US dollar accounted for 9.4%, SDRs for 8.5% and the Swiss franc for 4.1%. The remaining 0.7% of external debt was denominated in other currencies. The external debt maturity structure improved short-term debt declined from 4.9% at end-march to 4.3% at end-june, in response to a cutback in banks short-term debt. Chart 1 Serbia's external debt by debtor (% of GDP) M arch Јune Republic of Serbia Banks Total debt NBS Enterprises Source: National Bank of Serbia. The share of external debt in estimated GDP, as an external solvency ratio, stood at 74.8% at end-q2, which is below the level indicating high indebtedness (80%). This ratio improved by 2.2 pp from a quarter earlier on account of a rise in estimated GDP, led chiefly by the dinar s appreciation. The share of private sector external debt in estimated GDP equalled 44.8%. The ratio of external debt to 12-month exports of goods and services inclusive of remitances 1 increased by 2.4 pp to 167.4%, still remaining within the bounds of sustainability (up to 220%). External debt repayments came to 11.2% of estimated GDP in Q2, of which 9.1% of GDP related to the repayment of the principal and 2.1% to the repayment of interest. The ratio of external debt repayments to exports of goods and services equalled 30.9% in Q2. Adding remittances 1 to exports, the share of repayments in GDP was 25.1%, which is within the bounds of sustainability (25 30%). 1 According to the World Bank methodology presented in the publication World Development Indicators, within external liquidity indicators, debt repayments can be analysed in relation to exports of goods and services, inclusive of remittances since they represent a stable and significant inflow. The same applies to external debt within external solvency indicators. 1

3 Table 1 Indicators of Serbia' external position External liquidity indicators (in %) I II Foreign reserves/imports (in months) Foreign reserves/short-term debt Foreign reserves/gdp Debt repayment/gdp Debt repayment/exports Debt repayment/exports and remittances External solvency indicators (in %) External debt/gdp Short-term debt/gdp External debt/exports External debt/exports and remittances Source: National Bank of Serbia. Methodological explanations: - Foreign reserves/imports of goods and services (in months) - ratio of foreign reserves at the end of the period observed and the average monthly imports of goods and services during the same period. - Foreign reserves/short-term external debt ratio of the stock of foreign reserves and the stock of short-term external debt at the end of the period observed. - Foreign reserves/gdp ratio of the stock of foreign reserves at the end of the period observed and GDP in the last four quarters. - External debt repayment/gdp ratio of external debt repayment and GDP during the period observed. - External debt repayment/exports of goods and services ratio of external debt repayment and exports of goods and services during the period observed. - External debt repayment/exports of goods and services plus remittances ratio of external debt repayment and exports of goods and services plus remittances during the period observed. - External debt/gdp ratio of the stock of external debt at the end of the period observed and GDP in the last four quarters. - External debt/exports of goods and services ratio of the stock of external debt at the end of the period observed and the value of exports of goods and services over the last 12 months. - Short-term external debt/gdp ratio of the stock of short-term external debt at the end of the period observed and GDP in the last four quarters. `- External debt/exports of goods and services ratio of the stock of external debt at the end of the period observed and the value of exports of goods and services over the last 12 months - External debt/exports of goods and services plus remittances ratio of the stock of external debt at the end of the period observed and the value of exports of goods and services plus remittances over the last 12 months. 1. Public sector external debt 2 came at EUR 9.1 bln at end-june and its share in total external debt at 40.2%. External debt of the government and the NBS amounted to EUR 8.4 bln and government-guaranteed debt to EUR mln. Total public sector borrowing reached EUR mln in Q2 (EUR mln disbursements; EUR 78.7 mln repayments of the principal). Three new public sector credit arrangements were concluded and ratified by the National Assembly in Q2. The arrangements are worth EUR mln in total (EUR mln from EIB for Fiat Compact Cars Serbia, with the guarantee of the Republic of Serbia, EUR 150 mln from EIB Apex loan for SMEs and EUR 68.9 mln from the World Bank Second Public Expenditure Development Policy Loan Program). 2. Private sector external debt amounted to EUR 13.6 bln at end-june, of which banks accounted for EUR 4.3 bln and enterprises for EUR 9.3 bln. Total debt of the banking sector 2 Following the IMF s methodology, the Republic of Serbia s external debt figure also includes public debt liabilities, which, in addition to the old rescheduled debt and new government borrowing, encompass NBS liabilities, non-regulated RS liabilities including clearing debt, as well as a portion of debt of local governments and state agencies that is not government-guaranteed. 2

4 declined by 1.7%, reflecting primarily the drop in short-term debt, while enterprise debt fell by 1.5%. The private sector accounted for 59.8% of total external debt. In Q2, the private sector net repaid EUR mln of its long-term debt (total disbursements were EUR mln and repayments of principal EUR mln). The largest repayments were recorded in the following sectors: information and communication (EUR 50.9 mln), manufacturing (EUR 41.6 mln), financial leasing (EUR 36.2 mln), wholesale and retail trade (EUR 19.0 mln), mining (EUR 12.3 mln), transportation and storage (EUR 12.1 mln) and other sectors (EUR 9.6 mln). In regard to long-term loans, borrowing was recorded in the sectors of professional, scientific and technical activities (EUR 34.9 mln), other financial intermediation, including banks (EUR 18.5 mln) and real estate activities (EUR 18.0 mln). In Q2, new long-term private sector loans were worth EUR 1,153.3 mln EUR mln in the banking sector and EUR mln in the enterprise sector. Chart 1 External debt by creditor (as at 30 June ) Foreign governments and development banks 4.3% London Club 2.9% Paris Club 6.8% IFIs 29.0% Other creditors 56.9% Clearing 0.1% Source: National Bank of Serbia The terms of banking sector borrowing changed from Q1. The weighted average interest rate on loans concluded in Q2 rose 0.8 pp from a quarter earlier to 3.6%. The share of variable interest rate loans measured 93.8%, up by 10.5 pp from Q1. The average maturity of loans contracted in Q2 was 6 years and 3 months, which is 3 months longer than in the quarter before As regards the terms of borrowing of the enterprise sector, the weighted average interest rate was 3.7%, down by 1 pp from a quarter earlier. Variable interest rate loans made up 93.7% of total loans contracted in Q2, up by 16.7 pp on Q1. The average maturity of loans contracted in Q2 was 7 years and 9 months, up by 3 years and 6 months on the previous quarter. In Q2, of total long-term loans disbursed by the enterprise sector, 51.8% were extended by foreign banks and financial institutions related to domestic banks, 22.9% by foreign enterprises related to domestic borrowers, and 25.3% by other creditors. Loan repayments of enterprises continued to exceed new disbursements in Q2. 3

5 B. Public debt At end-june, public debt of the Republic of Serbia amounted to EUR 13.3 bln 3, or 43.7% of estimated GDP. Since the start of the year, public debt has increased by EUR 1.1 bln or 1.8 pp of GDP, reflecting almost entirely the rise in internal public debt. External public debt, by contrast, rose by not more than EUR 74.1 mln. The increase in the stock of public debt is for its major part attributable to government borrowing through issue of long-term dinar bonds. Chart 3 Public debt of the Republic of Serbia (EUR bln) (in %) M arch Internal debt - lef t scale External debt - lef t scale 41.9 Public debt as % of GDP - right scale June Source: RS M inistry of Finance and National Bank of Serbia. In line with this, the currency structure of public debt changed significantly in Q2. Thus, the share of dinar-denominated public debt rose from 15.8% in March to 18.5% in June. The euro accounted for 59.9% of public debt (including a portion of euro-indexed debt) 4, and other currencies including SDRs for 21.6%. Table 2 Stock of the Republic of Serbia's public debt (EUR bln) March 30 June Internal debt External debt TOTAL Source: RS Ministry of Finance. 3 Public debt of the Republic of Serbia is shown according to the methodology of the RS Ministry of Finance. Following that methodology, external public debt does not include NBS liabilities, non-regulated RS liabilities including clearing debt, and a portion of debt of local governments and state agencies that is not government-guaranteed. 4 A portion of public debt indexed to the euro includes the December issue of 6-month treasury bills in the amount of RSD 21.0 bln. 4

6 The public debt interest structure altered in the desired direction as well the share of debt contracted at fixed rates amounted to 69.6% at end-june (vs. 67.9% in March). A major part of variable interest rate debt remained linked to the euro EURIBOR and LIBOR (84.2%), a smaller part to the US dollar and Swiss franc LIBOR (10.5% and 2.6% respectively), and the rest to other interest rates (2.7%). The table below gives an overview of the generally accepted measures of debt sustainability: the ratio of the stock of debt and annual debt repayments to GDP, exports (and remittances) and budget revenue. Table 3 Measures of public debt sustainability (in %) Debt/GDP Debt/exports Debt/exports and remittances Debt/budget revenue Debt repayment/gdp Debt repayment/exports Debt repayment/exports and remittances Debt repayment/budget revenue Source: RS Ministry of Finance and National Bank of Serbia. Methodological explanations: Q1 Q2 - Public debt/gdp ratio of the stock of public debt at the end of the period observed and GDP in the last four quarters. - Public debt/exports of goods and services ratio of the stock of public debt at the end of the period observed and the value of exports in the last 12 months. - Public debt/exports of goods and services plus remittances ratio of the stock of public debt at the end of the period observed and the value of exports and remittances in the last 12 months. - Public debt/budget revenue ratio of the stock of public debt at the end of the period observed and budget revenue in the last 12 months. - Public debt repayment/gdp ratio of public debt repayment and GDP during the period observed. observed. - Public debt repayment/exports of goods and services plus remittances ratio of public debt repayment and exports and remittances during the period observed. - Public debt repayment/budget revenue ratio of public debt repayment and budget revenue during the period observed. Judging by the public debt to GDP ratio, the pace of government borrowing slowed in Q2. The share of public debt in GDP rose 0.6 pp to 43.7% 5, but this is for its major part due to GDP growth, because nominal public debt growth remained high (in Q2 government debt increased by EUR mln compared to EUR mln in Q1). Though this is quite understandable in view of the budget financing needs (4.1% of GDP), it should be noted that a part of the increase in euro terms is attributable to exchange rate differences given that already now a significant 18.5% of total public debt is denominated in the dinar which appreciated in Q2. Public debt under sold government securities 6 went up in Q2 by RSD 54.3 bln to RSD bln at end-june. 7 5 The Budget System Law caps public debt at 45% of GDP. 6 Including euro-denominated government securities. 7 Public debt statistics records government borrowing based on the nominal value of securities. Under the discount value, the stock of public debt under securities increased in Q2 by RSD 46.5 bln to RSD bln at end-june. The difference becomes all the more important as the maturity of issued securities extends. The ratio of public debt to GDP would be by 1 pp lower in June (42.7% instead of 43.7% of GDP) if securities were recorded at the discount and not the nominal value. 5

7 Effective rates on T-bills with maturity up to one year declined in Q2. Demand exceeded supply in nearly all auctions, and the auction sales rate was high (98%). The decline in effective rates on government securities with maturities over one year halted in Q2 reflecting increased volume of issue and almost unchanged auction sales rate. During Q2, two auctions of eurodenominated government securities were held. These securities have a semi-annual coupon payment and a fixed interest rate of 5.0% for 3-year maturity and 5.85% for 15-year maturity. Of the auctioned EUR mln, bonds worth EUR mln nominally were sold. Effective rate on 3-year securities is comparable to the yield rate on frozen FX savings bonds. Chart 4 Maturity structure of government debt under sold T-bills Chart 5 Effective rates on T-bills and NBS key policy rate (RSD bln) (in %, at annual level) М 6М 12М 18М 24М 36M dinar-denom. 6М euro-index. 53W euro-denom. 15Y euro-denom. 3Y euro-denom. Source: M inistry of Finance. Key policy rate Effective rate 6М Effective rate 18М Effective rate 6М euro-index. Effective rate 53W euro-denom. Effective rate 3Y euro-denom. Effective rate 3М Effective rate 12М Effective rate 24М Effective rate 36М Effective rate 15Y euro-denom. Source: M inistry of Finance. 6

8 Appendix 1 External debt of the Republic of Serbia (preliminary data as at 30 June ) Sector / Creditor Outstanding Debt (principal) Principal Arrears Interest Arrears in million EUR USD/EUR= Late Interest Total =1+3+4 TOTAL EXTERNAL DEBT 22, , , PUBLIC SECTOR BORROWING 9, , Medium and long-term debt 9, , Monetary Authority - National Bank of Serbia 1, ,571.2 IMF 1, ,506.2 China - restructured finan. loan in amount of 100 mln USD General Government 7, , Central Government - total 7, , Central Government debt 6, ,656.8 Multilateral institutions 3, ,362.9 IMF SDR_allocation IBRD - consolidated debt 1, ,116.5 IBRD IDA European Community EIB EIB - old regulated debt EUROFOND-CEB EBRD Foreign Governments and goverments' development banks 2, ,136.4 Paris Club_Consolidated debt 1) 1, ,547.0 o/w capitalized interest 2) Goverments Governments - Libya Governments' development banks London Club - regulated debt 3) Other Creditors o/w IBRD guarantee Debt in non-convertible currency Central Government - guaranteed debt Multilateral institutions EUROFIMA EBRD EIB Governments' development banks Other Creditors Government - Funds and Agencies EUROFOND-CEB - guaranteed consolidated debt Other Creditors - non-guaranteed debt Local Governments - total Local Governments - non-guaranteed debt EIB EBRD Other Creditors Local Governments - guaranteed debt EBRD Short-term Debt

9 2. PRIVATE SECTOR BORROWING* 13, , , Medium and long-term debt 12, , , Banks 3, ,413.4 International financial organizations EIB EBRD EFSE IFC Governments' development banks Other Creditors 2, , o/w MIGA insurance Enterprises 8, , ,217.0 International financial organizations EBRD IFC EIB EUROFOND-CEB Governments' development banks Other Creditors 8, , , o/w MIGA insurance Short-term Debt Banks Bank deposits and credit lines Other Creditors Enterprises Governments' development banks Other Creditors Russia - Trade debt for gas import Source:National Bank of Serbia NOTE: Since September 2010 methodology for the external debt statistics has been changed so that the external public debt includes obligations under the IMF SDR allocation (EUR mill), which was used in December 2009, as well as capitalized interest to Paris Club creditors (EUR 72.9 mill), while the loans concluded before December 20, 2000, under which the payments have not been effected, are excluded from the external debt of the private sector (EUR mill of which EUR mill relate to domestic banks and EUR mill to domestic enterprises). *It is estimated that arrears are overestimated due to the failure to submit the data in time. 1) Debt owed to Paris Club Creditors was consolidated in 2001 when it was agreed that 66% of debt will be cancelled; the first phase of reduction of 51% of debt was implemented on March 22, 2002, while the second phase of reduction of additional 15% of debt - on February 6, ) Pursuant to the provisions of the Agreed Minute signed with the Paris Club Creditors, in the period March 2002 December 2005, 60% of interest is capitalized and will be serviced starting from 2007 to ) In accordance with the Memorandum of Understanding on the Debt Restructuring which the Republic of Serbia signed on 7 July 2004 with the London Club Creditors, approximately 62% of debt was cancelled. 8

10 Appendix 2 Stock and flow of Serbia's external debt PRELIMINARY DATA in million EUR* Jan. - June 10 Total 2010 January 11 February 11 March 11 April 11 May 11 June 11 Total Change in (3 to 8) 10 (9-1) Foreign net loans A) Medium/long term, net (1.- 2.) Disbursements ( ) 2, , , official , o/w IMF private ( ) 1, , banks , other private , other private borrowing from non-resident banks Amortization - principle ( ) 1, , , official o/w IMF private ( ) 1, , , banks other private , , other private borrowing from non-resident banks , Amortization - interest ( ) official o/w IMF private ( ) banks other private other private borrowing from non-resident banks B) Short term, net (1.+ 2.) official, net private, net ( ) banks, net ( ) other short term credits, net deposit and credit lines, net other private, net in million EUR June 30, 2010 Dec.31, 2010 Jan.31, Feb.28, Mar.31, Apr.30, May 31, Jun. 30, in % GDP Change Jun. 30 in (8-2) Stock of External Debt 23, , , , , , , , % -1, A) Official ( ) 8, , , , , , , , % Medium/long term 8, , , , , , , , % Short term % 0.00 B) Private 14, , , , , , , , % -1, Medium/long term 13, , , , , , , , % Short term 1, , , , , , % Banks (1.+ 2.) 4, , , , , , , , % Medium/long term 3, , , , , , , , % Short term 1, , , , , % Other private (1.+ 2.) 10, , , , , , , , % Medium/long term 9, , , , , , , , % Short term % Source:National Bank of Serbia * f/x on date of transaction 9

11 Appendix 3 Disbursements, repayments of principal and interest on long-term external loans of the private sector shown by economic sector, 1 January 30 June in million EUR ECONOMIC SECTORS Jan Feb Mar Apr May Jun TOTAL Sharing Exports 1) % Financial and insurance activities Disb % Rep. princ Rep. int of which Monetary intermediation Disb % Rep. princ Rep. int of which Financial leasing Disb % Rep. princ Rep. int Real estate activities Disb % Rep. princ Rep. int Wholesale and retail trade; repair of motor Disb % vehicles and motorcycles Rep. princ Rep. int Transportation and storage Disb % Rep. princ Rep. int Manufacturing Disb % 3, Rep. princ Rep. int Mining and quarrying Disb % Rep. princ Rep. int Professional, scientific and technical activities Disb % 1.60 Rep. princ Rep. int Information and communication Disb % Rep. princ Rep. int Construction Disb % Rep. princ Rep. int Administrative and support service activities Disb % Rep. princ Rep. int of which Renting and leasing of motor vehicles Disb % Rep. princ Rep. int Agriculture, forestry and fishing Disb % Rep. princ Rep. int Accommodation and food service activities Disb % Rep. princ Rep. int Arts, entertainment and recreation Disb % 0.90 Rep. princ Rep. int Electricity, gas, steam and air conditioning supply Disb % Rep. princ Rep. int Education Disb % Rep. princ Rep. int Water supply; sewerage, waste management and Disb % remediation activities Rep. princ Rep. int Other service activities Disb % Rep. princ Rep. int Human health and social work activities Disb. 0% Rep. princ Rep. int TOTAL Disb % 4, Rep. princ , Rep. int Source: National Bank of Serbia 1) Serbia's exports totalled EUR 4,117 mln in. A table shows total amount of exports by economic sectors which was recorded during January - June, excluding EUR 0.6 mln for unclassified category. 10