South Eastern Europe and Mediterranean Emerging Market Economies

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1 South Eastern Europe and Mediterranean Emerging Market Economies Weekly Report 31 March 1 TURKEY AKP wins March 3 th local elections Q:13 real GDP growth ROMANIA IMF Board approves the 1 st and nd reviews April policy rate NBG Strategy & Economic Research Division Director: Paul Mylonas : : pmylonas@nbg.gr Emerging Markets Research Head: Michael Loufir : : mloufir@nbg.gr Analysts: Evlabia Fetsi : : efetsi@nbg.gr Konstantinos Romanos-Louizos : : romanos.louizos.k@nbg.gr Louiza Troupi : : troupi.louiza@nbg.gr BULGARIA Q:13 banking sector performance SERBIA Q:13 balance of payments FYROM January balance of payments ALBANIA January-February balance of payments UKRAINE Latest opinion poll ahead of the end-may presidential elections Q:13 real GDP growth Finansbank Research Chief Economist: Inan Demir : : inan.demir@finansbank.com.tr Analyst: Gökçe Çelik : : gokce.celik@finansbank.com.tr CYPRUS January-February fiscal performance IMF Board approved the the third review EGYPT A new President to take office by June th 13 bank lending and deposits The information in this document, being distributed by National Bank of Greece S.A., is based upon data and sources of information believed to be correct and reliable but the accuracy of which cannot be guaranteed. Accordingly, no representation or warranty, implied or expressed, is made by any member of National Bank of Greece S.A. as to its accuracy adequacy, timeliness or completeness.

2 Turkey 3, 3,1, 9 Local Elections * Preliminary results Q: Q: Performance of Major Parties in Recent Elections (% of the vote) Q:7 Q:7 Q: Q: 9, 3,,, 13, 11 General Elections Q:9 Real GDP Q:9 Q:1 Q:1 Q:11 Q:11 1, 1 Local Elections* y-o-y % change (rhs) q-o-q % change, s.a. (lhs) Q: Q: Q:13 Contribution Rates to Real GDP Growth (pps) Q:13 Q: Q3: Q: Q1:9 Q:9 Q3:9 Q:9 Q1:1 Q:1 Q3:1 Q:1 Q1:11 Q:11 Q3:11 Q:11 Q1: Q: Q3: Q: Q1:13 Q:13 Q3:13 Q:13 AKP CHP MHP Net Exports Private Consumption Government Consumption GFCF Change in Stocks GDP (y-o-y % change) Mar. 3-M F -M F -M F 1-m TRIBOR (%) TRY/EUR Sov. Spread (1, bps) Mar. 1-W % YTD % -Y % ISE 1 9, F 1F Real GDP Growth (%) Inflation (eop, %) Cur. Acct. Bal. (% GDP) Fiscal Bal. (% GDP) March 1 The AKP and PM Erdogan secured a vote of confidence, receiving 3.% of the vote in the local elections, and holding onto the cities of Istanbul and Ankara. In the March 3 th local elections, the ruling Justice and Development Party (AKP) gained 3.% of the vote, far ahead of the main opposition, the Republican People s Party (CHP), which received.%, and the Nationalist People s Action Party (MHP), which won 1.%. When compared with the results of the 9 local elections, both the AKP and CHP strengthened their popularity by about pps and 3 pps of the vote, respectively. However, compared with the 11 general elections, the AKP s popularity has weakened by about pps of the vote, whereas that of the CHP remained unchanged. Equally important, the AKP succeeded in holding the major cities of Istanbul and Ankara. The AKP s victory, amid corruption allegations and a stream of damaging security leaks, paves the way for PM Erdogan to run in the country's first direct presidential elections set for August. However, this victory is unlikely to help dampen political turbulence before the completion of the ongoing long electoral cycle to June 1, when parliamentary elections will take place (unless they are brought forward). Indeed, in his post-election speech, PM Erdogan appeared determined to continue his confrontational stance, which could trigger further social protests. He said that he would "enter the lair" of enemies who have accused him of corruption and leaked state secrets and that "They will pay for this". GDP growth exceeded consensus expectations in Q:13 and the FY:13 outcome reached %. The Turkish economy expanded strongly, for a third consecutive quarter, by.% y-o-y in Q:13, exceeding market consensus of %, and bringing FY:13 growth to % -- above the official forecast of 3.% and the downwardly-revised FY: outcome of.1% (from.%). After adjusting for seasonality and calendar effects, activity lost momentum for a second successive quarter, to.% q-o-q in Q:13 from.% q-o-q in Q3:13 and % q-o-q in Q:13. Domestic demand remained the driver of economic growth, for a fourth successive quarter, in Q:13 (contributing pps to overall growth). Indeed, private consumption rose by.3% y-o-y in Q:13 (contributing 3. pps to GDP growth), and private investment grew by.9% y-o-y, posting a positive growth rate for a second consecutive quarter (contributing.9 pps to headline GDP growth). However, public expenditure growth in Q:13 stabilized at its Q3:13 level of 9% y-o-y (contributing 1. pps to headline GDP growth), after having soared to % y-o-y in H1:13. Reflecting the imbalanced distribution of activity, the contribution of net exports to overall growth remained negative for a fourth successive quarter, and its drag strengthened (-3 pps of GDP in Q:13 against -. pps in Q3:13), as imports gained momentum (up 9.3% y-o-y against.% y-o-y in Q3:13). The acceleration in imports was driven, inter alia, by a sharp increase in imports of gold (up % y-o-y in USD terms in Q:13 against a decline of 13% y-o-y in Q3:13). Looking ahead, tightening domestic and external financial conditions, combined with persisting domestic political uncertainty, ahead of the August presidential elections and the June 1 parliamentary elections, should weigh on economic activity. Leading indicators for Q1:1 already indicate a slowdown. Indeed, the business confidence index declined by. pps y-o-y in Q1:1 against an increase of.3 pps y-o-y in Q:13, while the capacity utilization rate rose by 1. pps y-o-y in Q1:1 against an increase of. pps y-o-y in Q:13. Overall, we maintain our FY:1 GDP growth forecast of.%. NBG - South Eastern Europe and Mediterranean Emerging Market Economies - Weekly Report 1

3 31 March 1 Romania Policy Rate, Exchange Rate and Inflation 1-W Repo Rate (policy rate, left scale) CPI (y-o-y % change, left scale) RON/EUR (eop, right scale) 1/9 /9 7/9 1/9 1/1 /1 7/1 1/1 1/11 /11 7/11 1/11 1/ / 7/ 1/ 1/13 /13 7/13 1/13 1/1 /1 Monetary Conditions Index Exchange Rate Contribution Interest Rate Contribution MCI looser monetary conditions tighter monetary conditions 1/ 7/ 1/7 7/7 1/ 7/ 1/9 7/9 1/1 7/1 1/11 7/11 1/ 7/ 1/13 7/13 1/1 7/1 1/1 Headline Inflation & Core Inflation Headline Inflation (y-o-y % change) Adjusted Core II Inflation * (y-o-y % change) NBR's Headline Inflation Target Range Forecast Forecast 1/9 /9 7/9 1/9 1/1 /1 7/1 1/1 1/11 /11 7/11 1/11 1/ / 7/ 1/ 1/13 /13 7/13 1/13 1/1 /1 7/1 1/1 1/1 * excl. volatile, administered, tobacco and alcohol prices,,,, 3, 3, 3, 3, Mar. 3-M F -M F -M F 1-m ROBOR (%) RON/EUR.... Sov. Spread (1, bps) Mar. 1-W % YTD % -Y % BET-C 3, F 1F Real GDP Growth (%) Inflation (eop, %) Cur. Acct. Bal. (% GDP) Fiscal Bal. (% GDP) IMF programme remains on track, sustaining investor confidence. On March th, the Executive Board of the IMF approved the combined 1 st and nd reviews of Romania s -year stand-by agreement (SBA). Recall that the completion of the 1st review (initially scheduled for mid- December) was postponed following President Basescu s refusal to sign the 1 budget, due to his opposition to the additional excise duty on fuels. The measure was finally approved and will be implemented (in April instead of January). Romania s performance under the IMF programme has been impressive, with economic growth hitting a postcrisis high of 3.% in 13, the current account deficit narrowing to a record-low level of 1.1% of GDP and inflation remaining subdued (at c. 1%). At the same time, progress was made on the structural reform agenda (privatisations, energy price liberalisation). The completion of the reviews unlocked EUR 3mn in additional funding, bringing the total resources currently available to Romania to EUR mn (.% of GDP). However, the authorities are treating the agreement as precautionary, and, so far, have not drawn on the funds. The next review of the IMF programme is expected to take place in June, and will focus on: i) the implementation of the 1 budget and potential scope for a reduction in social security contributions for employers by pps; and ii) progress in restructuring state-owned enterprises. Regarding the latter, the Government has pledged to launch initial public offerings for a majority stake in power distributor, Electrica, and a 1% stake in power holding, Oltenia, by end-june. The plan to list a 1% stake in hydro-power producer, Hidroelectrica, is likely to face legal obstacles, but unlikely to cause a problem for the completion of the next review. The NBR keeps its key rate on hold at 3.%. Following six policy rate cuts since July 13, totalling 17 bps, the NBR Board left its 1-week repo rate unchanged at a record-low 3.% at its meeting on March th. As a result, with the real ex-post policy rate just above its historical average (c. %), monetary conditions remain broadly neutral (see our MCI). Note, however, that liquidity in the banking system remains abundant, as suggested by the highly negative spread between the 1- week money market rate and the policy rate (currently at - bps). Recall that the NBR loosened policy significantly in January by reducing its reserve requirements ratios on RON and FX liabilities (by 3 pps and pps, respectively, to % and 1% in January, increasing liquidity by about 1% of GDP). The NBR is set to reduce further its reserve requirement ratios. Governor Isarescu has hinted that the NBR appears to have no room for further rate cuts, in view of the projected pick-up in headline inflation (to 3.% at end-1, to the upper bound of the central bank s inflation target range (.±1%), from around 1% currently) and fears of pressure on the domestic currency, due to heightening risk aversion towards emerging markets. In this context, we expect the NBR to maintain its 1- week repo rate unchanged at 3.% throughout the year, implying an expost real policy rate of c. % at end-1. At the same time, with excess liquidity in the banking system expected to dissipate gradually, reflecting the ongoing Fed tapering and debt issuance from the Ministry of Finance, we believe that the NBR could further reduce its reserve requirement ratios. However, in view of the sizeable debt repayments to the IMF in 1 (EUR.bn) and the risk of capital outflows to parent banks, as well as the need to rebalance banks loan portfolios towards LC loans, we expect these cuts to be applied to LC rather than FX-denominated liabilities. All said, we see the NBR reducing its reserve requirement ratio on RON liabilities to 1%, likely in H:1. NBG - South Eastern Europe and Mediterranean Emerging Market Economies - Weekly Report

4 Bulgaria Q:7 Q:7 Quarterly Net Profit (BGN mn) Profit Tax Provisions Operational Expenses Non-Interest Income Net Interest Income Net Profit Q1:7 Q3:7 Q1: Q3: Q1:9 Q3:9 Q1:1 Q3:1 Q1:11 Q3:11 Q1: Q3: Q1:13 Q3:13 Q:7 Q: NPL Ratio & Cost of Risk NPL Ratio (y-o-y change, bps, right scale) Q:7 Cost of RIsk (bps, -quarter m.a., annualised, left scale) Q: Q: Q:9 Q:9 Q:1 Q:1 Q:11 Q:11 Q: Return on Average Equity & Capital Adequacy Ratio (%) CAD (right scale) ROAE (-quarter m.a., annualised, left scale) Q: Q:9 Q:9 Q:1 Q:1 Q:11 Q:11 Q: Q: Q: Q:13 Q:13 Q: Q: Mar. 3-M F -M F -M F 1-m SOFIBOR (%).3... BGN/EUR Sov. Spread (17, bps) Mar. 1-W % YTD % -Y % SOFIX F 1F Real GDP Growth (%) Inflation (eop, %) Cur. Acct. Bal. (% GDP) Fiscal Bal. (% GDP) March 1 The profitability of the Bulgarian banking system improved in Q:13, mainly due to lower loan loss provisioning. Net profit after tax increased by an impressive % y-o-y in Q:13 to BGN 11mn (EUR.mn or.% of GDP), bringing FY:13 profit to BGN mn (up 3.% y-o-y). As a result, the annualised ROAA and ROAE stood at.7% and.3% in FY:13, respectively, broadly unchanged from FY:. Provisioning continued to ease in Q:13, in line with slower NPL formation. The NPL ratio stood at 1.1% at end-13, broadly unchanged from 1% at end-, and well below a peak of 1.9% in September, despite credit stagnation. Note that Bulgaria is the only country in the region where the NPL ratio appears to have stabilized in 13, albeit at a high level. As a result, banks continued to reduce NPL provisions (down 17.3% y-o-y in Q:13 following declines of 9.3% in 9M:13 and 7.% in FY:), bringing the annualised cost of risk to 1 bps in Q:13 (down 7 bps y-o-y). For the full year, the cost of risk was 1 bps, much lower than in FY: ( bps). That being said, the NPL coverage ratio stood at 7% in Q:13, up from 7% in Q:. The banking system also remains well-capitalised, with a capital adequacy ratio (CAR) of.9% (up bps y-o-y) in Q:13, far above the minimum regulatory level of % (note that, as of January 1, the minimum CAR was raised to 13.%). Operating income improved in Q:13 (up by 1.3% y-o-y compared with a FY:13 decline of.%), as both net interest income (NII) and net non-interest income (NNII) recovered. After 9 consecutive quarters of decline, NII rose in Q:13, albeit marginally (by.% y-o-y compared with a FY:13 decline of 3.%), as the impact of the expansion in interest earning assets (up % y-o-y) more than offset a lower net interest margin (NIM, 3 bps in Q:13 -- down 1 bps y-o-y -- and 31 bps in FY:13 against 33 bps in FY:). Note that the NIM appears to have stabilised, suggesting that deposit price competition has waned following a period of strong deposit growth (the loan-todeposit ratio fell to 1% at end-13 from a peak of 17% in mid- 9). Moreover, NNII increased in Q:13 (by 3% y-o-y compared with a FY:13 decline of 1.%), on the back of higher net fees and commissions (up.1% y-o-y in Q:13 and.1% in FY:13) and trading gains (up.7% y-o-y in Q:13 but down 17.% in FY:13). Tight cost controls continued in Q:13. Indeed, operating expenses remained subdued in Q:13 (flat y-o-y, and up.7% in FY:13, broadly in line with average inflation). Nevertheless, the efficiency of the banking system remained unchanged, with the cost-to-income ratio at.% in Q:13 and.1% in FY:13 against.% in FY:. Profitability is set to improve in 1, albeit slowly, mainly reflecting lower loan loss provisioning. In view of the gradual economic recovery (real GDP growth is set to accelerate to 1.% in FY:1 from.9% in FY:13), we expect the NPL ratio to improve further in 1, moderating to 17% at end-year. Assuming that banks raise their NPL coverage ratio to % at end-1 (from 7% at end-13), we see the cost of risk at 1 bps in FY:1 (against 1 bps in FY:13). At the same time, with demand for high-costing LC loans remaining weak, and the supply of FX credits constrained by the large liquidity gap (note that the FX loan-to-deposit ratio stood at % at end-13), credit growth should continue to be relatively subdued in 1 (up by -3% against % in 13), still below deposit growth (up by % in 1 following an expansion of.9% in 13), providing little support to profitability. In this context, the NIM should remain broadly flat at current levels (3 bps). All said, we see ROAE improving to % in FY:1 from.3% in FY:13. NBG - South Eastern Europe and Mediterranean Emerging Market Economies - Weekly Report 3

5 31 March Serbia Current Account Balance (-Quarter Rolling Sum, as % of GDP) Current Account Balance Trade Balance Transfers Balance Services Balance Income Balance Q 7 Q1 Q Q3 Q Q1 9 Q 9 Q3 9 Q 9 Q1 1 Q 1 Q3 1 Q 1 Q1 11 Q 11 Q3 11 Q 11 Q1 Q Q3 Q Q1 13 Q 13 Q3 13 Q 13 Capital and Financial Account (-Quarter Rolling Sum, as % of GDP, excluding IMF disbursements) Capital & Financial Account FDI Loans FX Currency & Deposits Other Q 7 Q1 Q Q3 Q Q1 9 Q 9 Q3 9 Q 9 Q1 1 Q 1 Q3 1 Q 1 Q1 11 Q 11 Q3 11 Q 11 Q1 Q Q3 Q Q1 13 Q 13 Q3 13 Q 13 External Financing (EUR bn) 13E * Assuming no disbursements from the IMF 1F Financing Needs. 9. Current Account Deficit Amortisations + Other. 7. Financing Sources FDI..9 Loans & Other 9..7 External Financing Balance IMF -. -.* Change in FX Reserves (- denotes increase) Mar. 3-M F -M F -M F 1-m BELIBOR (%) RSD/EUR Sov. Spread (1, bps) 1 7 Mar. 1-W % YTD % -Y % BELEX F 1F Real GDP Growth (%) Inflation (eop, %) Cur. Acct. Bal. (% GDP) Fiscal Bal. (% GDP) The current account deficit (CAD) continued to narrow markedly in Q:13, to.% of GDP on a -month rolling basis. The CAD continued to shrink in Q:13, albeit at a slower pace, declining by. pps y-o-y after narrowing by 1.7 pps per quarter in 9M:13. This performance was driven by exports, which increased by a strong % y-o-y, in EUR terms, in Q:13 (almost double their growth rate of % in Q:), albeit at a slower pace compared with 3% in 9M:13. The moderation in exports is due to negative base effects, as exports by the carmaker FIAT were launched in August (vehicle exports -- accounting for a sizeable 1% of total exports in FY:13 -- slowed to % y-o-y in Q:13 from 37% y-o-y in 9M:13). On the other hand, import growth remained subdued, slowing to.3% y-o-y in Q:13, from 9.% in 9M:13, contained by the continued decline in private consumption and fiscal consolidation. The FY:13 CAD narrowed markedly, to an 11-year low, mainly supported by exports by FIAT. The CAD shrank to.% of GDP in FY:13 -- less than half the FY: outcome of 1.% of GDP. Note that Serbia s external adjustment in 13 was by far the largest among SEE- countries (the average decline in the CAD in the other SEE- countries is estimated at.1 pp of GDP y-o-y). This impressive improvement was driven mainly by the strong acceleration in exports (up.% y-o-y, in EUR terms, in FY:13, from just 3.% in FY:), largely due to higher exports by FIAT (with vehicle exports contributing a sizeable 1. pps to FY:13 export growth). Exports were also supported by improving price competitiveness (the REER has depreciated by.% over the past years). On the other hand, import growth remained subdued (up.1% y-o-y in FY:13, broadly unchanged from a rise of 3.3% in FY:), despite the high import content of exports. It is important to note that exports are % above their pre-crisis high in, while imports remain 11% below their pre-crisis level in. Despite a weak Q:13 performance, the capital and financial account (CFA) surplus (excluding the IMF) improved in FY:13, on the back of once-off factors. The CFA surplus narrowed by.1 pps of GDP in Q:13, mainly reflecting higher sovereign borrowing in Q: (issuance of Eurobonds of EUR 77mn,.3% of GDP, in Q:13 against EUR 1.bn in Q:). Notwithstanding the relatively weak Q:13 performance, the FY:13 CFA surplus improved by 1. pps to.% of GDP, mainly due to higher (net) FDI inflows, of.3% of GDP in FY:13 against.% in FY:. The weak performance by net FDI inflows in FY: reflected a base effect: the repurchase by the stateowned Telekom Srbija of a % stake in Greece s OTE for EUR 3 mn or 1.% of GDP in January. The CFA was also supported by the issuance of sovereign Eurobonds, worth EUR 1.9bn (.% of GDP) -- larger than the EUR 1.bn Eurobond issued in. The positive current and capital account developments allowed the repayment of EUR mn to the IMF in 13, and boosted FX reserves by EUR.3bn in 13 to EUR 11.bn (7. months of GNFS imports) -- partly compensating for their decline of EUR 1.1bn in. The CAD is set to continue to narrow, albeit at a slower pace, in 1, reaching.% of GDP. Exports should be supported by the gradual recovery in the euro area, while imports will continue to be contained by subdued domestic demand. Regarding financing, projecting: i) no disbursements from the IMF, in the context of a precautionary agreement; ii) a rise in FDI inflows by. pps y-o-y to.7% of GDP; iii) a lower blended rollover ratio of maturing external debt of 11% (from 13% FY:13); and iv) the repayment of EUR.bn to the IMF, we expect FX reserves to stabilise at their end-13 level. NBG - South Eastern Europe and Mediterranean Emerging Market Economies - Weekly Report

6 F.Y.R.O.M. External Trade (EUR terms) Exports (y-o-y % change, lhs) Imports (y-o-y % change, lhs) Trade Deficit (% of GDP, rhs) 1/ / 11/ /9 9/9 /1 7/1 /1 /11 1/11 3/ / 1/13 Current Account Balance (-M Rolling Sum, as % of GDP) Trade Balance Services+Income /13 Transfers CAB 11/13 1/ / 9/ 1/9 /9 9/9 1/1 /1 9/11 1/11 /11 9/11 1/ / 9/ 1/13 /13 9/13 1/1 1/ / 11/ Balance of Payments (-M Rolling Sum, as % of GDP) /9 9/9 /1 Current Account Balance Cap. & Fin. Acc. Balance and E&O IMF disbursements Overall Balance (excl. IMF) Overall Balance (incl. IMF) 7/1 /1 /11 1/11 3/ / 1/13 /13 11/ Mar. 3-M F -M F -M F 1-m SKIBOR (%).... MKD Sov. Spread (1, bps) Mar. 1-W % YTD % -Y % MBI 1 1, E 1F 1F Real GDP Growth (%) Inflation (eop, %) Cur. Acct. Bal. (% GDP) Fiscal Bal. (% GDP) March 1 The January current account deficit (CAD) narrowed to a - month low of 1.% of GDP on a -month rolling basis (from 1.% in December 13). The CAD narrowed by. pps y-o-y to.% of GDP in January, due to a significant increase in the services surplus and a slight narrowing in the trade and income deficits. Indeed, the services surplus increased strongly in January (up. pps y-o-y to.% of GDP), on the back of higher trade-related receipts and lower payments to foreign companies due to the gradual slowdown in construction activity, ahead of the completion of the Skopje 1 project in H1:1. Recall that this project envisaged the construction of a host of public buildings and monuments in the capital, set to transform Skopje into a tourist attraction. The narrowing in the trade deficit in January (by.1 pp y-o-y to 1.% of GDP) was driven by imports, which continued to decline, albeit at a slower pace (by. pps y-o-y in January compared with. pps per month in Q:13), due to shrinking domestic demand (down by.% y-o-y in real terms in Q:13). Furthermore, the income deficit also narrowed in January (by.1 pp y-o-y to.% of GDP), on the back of lower dividend and profit outflows. The capital and financial account (CFA) balance deteriorated sharply in January, leading to a negative overall balance. The CFA balance deteriorated by 1.9 pps y-o-y to a deficit of.1% of GDP in January. This deterioration was driven by a sharp decrease in other net capital & portfolio outflows (down 1. pps y-o-y in January), reflecting strong base effects from last year s disbursement of a - year EUR mn (3.1% of GDP) commercial loan from Deutsche Bank. Moreover, non-debt generating (net) FDI inflows moderated slightly (down. pps y-o-y to.% of GDP in January). Nevertheless, on a -month rolling basis, the FDI cover ratio improved significantly, to % in January from 17% in December 13 and 33% in January 13 reflecting, inter alia, the successful reforms of the business environment in recent years (including a business-friendly tax regime, low business costs and technological industrial development zones TDIZ) -- with FYROM improving its ranking in the World Bank s Doing Business index for 1 to th position from 9 th in 9. Reflecting current account and CFA developments in FY:13, the overall balance deteriorated in January (by 1. pps y-o-y to a deficit of.1% of GDP), with FX reserves declining to EUR 1,97mn from EUR 1,993mn at end-13 (still covering.3 months of imports of GNFS). The CAD is set to widen to.% in 1 (from 1.% in 13), but its financing is not a cause for concern. Looking ahead, we expect private transfers to moderate gradually towards historical levels (17%- 1% of GDP at end-1 from 19.% in January), continuing a trend of normalization in unrecorded remittances and unregistered exports of services (reportedly reflecting transactions at the borders with Greece) initiated in Q:. This deterioration should be only partly offset by a moderate narrowing in the trade deficit, reflecting a rebound in imports, in line with recovering domestic demand in 1. According to our baseline scenario, assuming that: i) FDI inflows rise further (to 3.7% of GDP in 1 from 3.% in FY:13), in line with a pipeline of new projects in the flourishing sub-sector of automotive spare parts and the medical products manufacturing sector; and ii) the maturing external debt rollover improves (to 9% in 1 from 7% in 13), we see reserve assets rising by EUR mn in 1, following a decline of EUR mn in 13, bringing FX reserves to EUR,113bn (covering. months of GNFS imports). NBG - South Eastern Europe and Mediterranean Emerging Market Economies - Weekly Report

7 31 March 1 Albania Consolidated Fiscal Balance (% of GDP) 13 Outcome M:13 Outcome M:1 Outcome 1 Budget Tax Revenue, Primary Expenditure & Fiscal Balance (-month rolling sum) Fiscal Balance (% of GDP, rhs) Tax Revenue (y-o-y % change, lhs) Primary Expenditure (y-o-y % change, lhs) NBG 1 Forecast Revenue Tax Revenue PIT CIT VAT Excises Customs Other taxes Grants Non-Tax Rev Expenditure Current Exp Personnel Operational Subsidies Social Insur Local Budget Other Exp Int. Payments Capital Exp Net Lending / Arrears..... Contingency reserves Fiscal Balance Primary Bal /9 /9 9/9 /9 3/1 /1 9/1 /1 3/11 /11 9/11 /11 3/ / 9/ / 3/13 /13 9/13 /13 3/1 Mar. 3-M F -M F -M F 1-m TRIBOR (mid, %) ALL/EUR Sov. Spread (bps) Mar. 1-W % YTD % -Y % Stock Market E 1F 1F Real GDP Growth (%) Inflation (eop, %) Cur. Acct. Bal. (% GDP) Fiscal Bal. (% GDP) Fiscal consolidation continued in January-February, with the - month rolling fiscal deficit moderating to.% of GDP from a - year high of.% in September 13. The fiscal consolidation initiated in mid-september, when the new Government took office, continued during the first months of the year. Indeed, the fiscal deficit narrowed by an average of.3 pps of GDP y-o-y per month in January-February, similar to Q:13, after having widened significantly by an average of.3 pps of GDP y-o-y per month in 9M:13. Recall that there was an urgent need to initiate fiscal consolidation in order to: i) contain the surging fiscal deficit, which reached a -year high in September, in the wake of the legislative elections; and ii) conclude talks with the IMF on a 3-month EUR 33mn arrangement under the Extended-Fund Facility (EFF). The improvement in January-February was driven by a sharp decline in expenditure (down. pps of GDP y-o-y), reflecting mainly sharp cuts in capital expenditure (. pps of GDP y-o-y). The revenue performance in M:1 remained unchanged from a year earlier and would have been weaker had VAT not surprised on the upside. In fact, VAT rose by.1 pp of GDP y-o-y, following the discovery and termination of a large VAT fraud reimbursement scheme. Importantly, the revenue performance should improve further due to the implementation of revenue-enhancing measures, targeting mainly excise and coporate taxes (see below). As a result of the continued fiscal adjustment in M:1, the -month rolling fiscal deficit eased to.% of GDP in February from.% in December 13 and a peak of.% in September, converging to the FY:1 target of %, excluding the budgeted clearance of arrears and unpaid bills (.% of GDP). The FY:1 fiscal deficit is on track to reach the target of % of GDP (excluding the clearance of arrears and unpaid bills). The 1 Budget targets a fiscal deficit of.% of GDP, up from the FY:13 outcome of.% of GDP. However, excluding the budgeted clearance of the bulk of accumulated arrears and unpaid bills, the adjusted FY:1 fiscal target is % of GDP. Indeed, the 1 Budget envisages the clearance of unpaid bills to businesses and VAT refunds of EUR mn or.% of GDP, out of total arrears of EUR 1mn or.3% of GDP (dating as far back as ) to be cleared by end-. This is set to support domestic demand, strengthen private sector balance sheets, and facilitate the resumption of credit growth (as NPLs should decline). As expected, the envisaged corrective fiscal measures focus on the revenue side, as the tax revenue-to-gdp ratio has declined in the past two years, leading Albania to fall further behind its regional comparators. The envisaged key measures consist of increases in: i) the profit tax rate from 1 to 1%; ii) the excise tax on cigarettes, wine, beer, alcoholic beverages, energy, drinks and tobacco; and iii) gasoline prices by about.% (expected to yield.%,.%, and.% of GDP, respectively). We expect the FY:1 revenue growth target of 11% to be missed, due to a weaker-than-budgeted impact of the envisaged revenueenhancing measures and, to a lesser extent, lower-than-projected nominal GDP growth (.% against our forecast of 3.%). We foresee a revenue shortfall of. pps of GDP for this year. However, this shortfall should be offset through: i) the saving of contingency reserves (.3 pps of GDP); and ii) expenditure cuts (expenditure growth should be contained at.7% at most, compared with its FY:1 target of.9%). We expect the spending cut to come from current expenditure -- mainly operational expenditure. Overall, we expect the FY:1 budget deficit (excluding the clearance of arrears) to meet its target of % of GDP. NBG - South Eastern Europe and Mediterranean Emerging Market Economies - Weekly Report

8 31 March 1 Ukraine 3 Opinion Poll Results ahead of the Presidential Elections 3 1st Round nd Round 13 1 Poroshenko Klitschko* Tymoshenko Tigipko *Klitschko withdrew from the presidential race, on March 9 th, in favour of Poroshenko pps Real GDP (y-o-y % change) Ukraine: Q1:-Q: CAGR Ukraine Russia Euro Area Q3: Q:3 Q1: Q: Q3: Q: Q1:7 Q:7 Q3: Q:9 Q1:1 Q:1 Q3:11 Q: Q1:13 Q:13 1 Ukraine: Q1:9-Q3:13 CAGR Contribution to Real GDP Growth GDP (y-o-y, % change) GDP excluding agriculture (y-o-y, % change) Q1 Q Q3 Q Q1 9 Q 9 Q3 9 Q 9 Q1 1 Q 1 Q3 1 Q 1 Q1 11 Q 11 Q3 11 Q 11 Q1 Q Q3 Q Q1 13 Q 13 Q3 13 Q 13 services construction industry agriculture pps Mar. 3-M F -M F -M F 1-m KIUAH (%) UAH/USD Sov. Spread (1, bps) 9 1 Mar. 1-W % YTD % -Y % PFTS E 1F 1F Real GDP Growth (%) Inflation (eop, %) Cur. Acct. Bal. (% GDP) Fiscal Bal.* (% GDP) *Consolidated budget, including Naftogaz The pro-eu oligarch, P. Poroshenko, appears to be the overwhelming favourite in the upcoming presidential elections. According to the latest poll on March 19 th, P. Poroshenko is the outright favourite (3%). He is known as the chocolate king, as he owns the country s largest chocolate factory. He is an independent MP, and the only oligarch who has supported the pro-european protests since their beginning. His popularity is set to increase further, due to his backing by his main contender, the former world champion boxer, V. Klitshchko (13%), who withdrew from the presidential race on March 9 th. Although the number of candidates for the presidential race (currently 1) is set to increase by April th -- the deadline for registration -- it is widely expected that the election will be a two-horse race between Poroshenko and former PM, Y. Tymoshenko. Indeed, Tymoshenko lags far behind (%). According to domestic political analysts, Poroshenko will win by a significant margin in a run-off in June -- as none of the main contenders are likely to secure % of vote in the first round. Growth accelerated to 3.3% y-o-y in Q:13, solely due to a rebound in agricultural output. According to our estimates, the quarterly seasonally-adjusted (s.a.) real GDP improved significantly in Q:13, recovering strongly by 3.% q-o-q, following a decline of.% in Q3:13 and an average quarterly rise of.% in H1:13. The sharp improvement in underlying growth occurred despite the negative impact of daily mass protests against the President, and reflects a rebound from a weak performance in agricultural production in Q3:13, as heavy rain disrupted the summer harvest. On an annual basis, real GDP growth turned positive, after successive quarters of contraction, reaching an -quarter high of 3.3% y-o-y in Q: pps below the flash estimate compared with an average quarterly decline of 1.% y- o-y in 9M:13. With the Q:13 strong performance, real GDP stagnated in FY:13, following a marginal rise of.3% in FY:. The primary sector was the only growth driver in Q:13. After being a drag in Q3:13, agricultural output (accounting for % of total output in Q) surged by 3.% y-o-y in Q:13 against a decline of % in Q3:13 (reflecting the heavy rain-suspended harvest in September). Importantly, excluding agriculture, real GDP growth fell deeper into negative territory (-.9% y-o-y in Q:13, following declines of 1% in Q3:13 and.% in H1:13). This was driven by a deterioration in consumer and business confidence, amid massive anti-governmental rallies in Q:13, Ukraine s increasing financing pressures and uncertainty regarding its future policies, as well as monetary policy tightening and the imposition of capital controls. Economic growth is expected to plunge to -3% in 1. Under our baseline scenario, assuming, inter alia, the timely implementation of IMF-related adjustment measures (to be supported by an assistance package of USD 7bn -- out of which USD 1-1bn will be from the IMF) and the stabilisation of the domestic currency at around UAH 9. : USD 1, we now expect economic growth to turn negative in FY:1, recording a decline of 3% (compared with our initial projection for a growth of 1.%). The downward revision was driven by the expected contraction in domestic demand, due to: i) the culmination of the political turmoil in Q1:1; ii) the implementation of corrective fiscal measures following an agreement with the IMF; and iii) higher imported gas prices (the average imported gas prices are set to return to USD per tcm in Q:1-Q:1 from USD. per tcm under the mid- December agreement), that should hit the gas-intensive industrial sector (¼ of GDP). The industrial sector should also suffer from lower exports to Russia -- Ukraine s main (single) trading partner, accounting for % of total exports inter alia, due to deteriorating relations. NBG - South Eastern Europe and Mediterranean Emerging Market Economies - Weekly Report 7

9 Cyprus Consolidated Fiscal Balance (% of GDP) 13 M:13 M:1 Outcome Outcome Outcome 1 Target Tax Revenue, Primary Expenditure & Fiscal Balance (-M Rolling Sum) Tax Revenue (y-o-y % change, left scale) Primary Expenditure (y-o-y % change, left scale) Fiscal Balance (% of GDP, right scale) / / 1/ /9 /9 1/9 /1 /1 1/1 /11 /11 1/11 / / 1/ /13 /13 1/13 /1 1 Forecast Revenue Tax Revenue Direct Taxes Indirect Taxes V.A.T Soc. Contrib Non-Tax Revenue Expenditure Current Expenditure..,.. Personnel Goods & Services Subsidies Interest Payments Soc.Sec.Payments Pension & Grat Transfers Capital Expenditure Fiscal Balance Primary Balance Mar. 3-M F -M F -M F 1-m EURIBOR (%) EUR/USD Sov. Spread (1, bps) Mar. 1-W % YTD % -Y % CSE Index E 1F 1F Real GDP Growth (%) Inflation (eop, %) Cur. Acct. Bal. (% GDP) Fiscal Bal. (% GDP) March 1 Budget execution in M:1 overperformed strongly, bringing the -month rolling fiscal deficit to.9% of GDP in February from.1% of GDP in December 13. The general government budget balance improved significantly, by.3 pps y-o-y to a surplus of.% of GDP in M:1, due to a significant overperformance in expenditure (down 11.3% y-o-y in M:1 versus a Q1:1 growth target of +9.% y-o-y). Specifically, the overperformance in both current and capital expenditure contributed to this positive outcome (they declined by 1.% y-o-y and.9% y-o-y, respectively, in M:1, while the respective targets envisaged increases of.1% and.3% y-o-y). This positive fiscal performance was mitigated by weak M:1 revenue (down 7.3% y-o-y, a larger decline than its Q1:1 growth target of -3.7% y-o-y). The revenue underperformance resulted from lower-thananticipated indirect tax collection and social security contributions (+.% and -.1%, respectively, in M:1 compared with Q1:1 targets of +1.9% and +9.3%), which more than offset a significant overperformance in direct tax collection and non-tax revenue & grants (+.% and -.%, respectively, in M:1 versus Q1:1 targets of -1.1% and -3.%). With the M:1 outturn, the -month rolling fiscal deficit narrowed to.9% of GDP in February, from.1% in December 13. The FY:1 fiscal deficit is on track to meet its target of.% of GDP. The revised 1 Budget foresees a loosening of the fiscal stance, targeting a general government fiscal deficit of.% of GDP,.7 pps of GDP higher than the 13 outcome. This target should be easily met, in view of the year-to-date performance, and despite the repayment of the remainder of the resolution of Laiki Bank related compensation to pension funds (EUR mn or.% pps of GDP). Public sector borrowing requirements set to reach EUR 3.bn (.9% of GDP), the bulk of which will be covered by the ESM and the IMF. The requirements comprise: i) the fiscal deficit (EUR.9bn); ii) amortisations of maturing government debt (EUR 1.7bn); and iii) a buffer to accommodate increased needs in case of a deeper-thaninitially-expected recession (EUR.bn). The ESM and the IMF will provide the bulk of financing (EUR.bn or.% of GDP), with the residual financing comprising the rollover of maturing debt, essentially by domestic banks. The IMF completes the third review, and concludes that the adjustment programme is on track. On March th, the IMF Board completed the 3 rd review of the country s financial assistance programme, approved in late-march 13. The Board commended the Cypriot authorities for their compliance with the requirements of the Troika s financial assistance programme. All end-december performance criteria for December 13 fiscal targets were met within a significant margin, while the adoption of the privatisation plan and the law on fiscal responsibility and budget systems were also observed on time. Furthermore, the structural benchmark on the completion of the recapitalization and consolidation of the cooperative credit institutions (CCIs) was delivered at end-march. As a result, the IMF released EUR 3.7mn, which, along with the expected release of EUR 1mn by the ESM on April th, brings total disbursements under the programme to EUR.1bn, out of a total of EUR 1bn (or 1% of GDP). The completion of the th review, set for end-june, will hinge on the continuation of fiscal consolidation and the implementation of structural benchmarks related to the financial sector, including the development of a private sector debt-restructuring framework to manage the high level of non-performing loans. NBG - South Eastern Europe and Mediterranean Emerging Market Economies - Weekly Report

10 Egypt Customer Deposits (y-o-y % change) Retail (adj. fo FX variations) Corporate (adj. for FX variations) Total (adj. for FX variations) Total 3/ / 9/ / 3/9 /9 9/9 /9 3/1 /1 9/1 /1 3/11 /11 9/11 /11 3/ / 9/ / 3/13 /13 9/13 /13 Loans to the Private Sector (y-o-y % change) Retail (adj. for FX variations) Corporate (adj. for FX variations) Total (adj. for FX variations) Total 3/ / 9/ / 3/9 /9 9/9 /9 3/1 /1 9/1 /1 3/11 /11 9/11 /11 3/ / 9/ / 3/13 /13 9/13 /13 Government Securities held by Banks & Loans to the Private Sector (% of Customer Deposits) Loans to the Private Sector Government Securities held by Banks 9/ / 3/9 /9 9/9 /9 3/1 /1 9/1 /1 3/11 /11 9/11 /11 3/ / 9/ / 3/13 /13 9/13 / Mar. 3-M F -M F -M F 1-m CAIBOR (%) EGP/USD Sov. Spread (. bps) 1 Mar. 1-W % YTD % -Y % HERMES /11 11/ /13 13/1F 1/1F Real GDP Growth (%) Inflation (eop. %) , 1. Cur. Acct. Bal. (% GDP) Fiscal Bal. (% GDP) March 1 A new President to take office by June th. The Presidential Elections Commission (PEC) announced that: i) the first round of the long-awaited presidential elections will be held on May th and 7 th ; ii) if no candidate secures more than % of the vote, a run-off will take place on June th and 17 th ; and iii) results of each round will be released on June th and June th, respectively. To date, the only candidates to have declared their intentions to run are the country s de facto leader since the removal of Islamist President Mursi from power last July, ex-defense minister and army commander, el-sissi and the Nasserite politician, H. Sabahi, who came third in the presidential elections. It is widely expected that el-sissi will be elected, in view of his popularity and the absence of serious contenders. The presidential race will be followed by parliamentary elections which, according to the 1 constitution, must start by July 1 th -- six months after the ratification of the national charter. Customer deposit growth (in FX-adjusted terms) reached a -year high of.% y-o-y in December, suggesting returning confidence in economic prospects. Customer deposit growth increased to 1% y- o-y in December from 11.% y-o-y a year earlier. Adjusted for FX variations, the acceleration in deposit growth was less pronounced. Indeed, overall deposits (FX adjusted) rose by.% y-o-y in December compared with 11.% y-o-y a year ago. The acceleration was mainly driven by the corporate segment, which surged by 1.% y- o-y in December compared with an increase of just 1.3% y-o-y a year earlier. The (FX adjusted) retail segment (representing % of total deposits) also improved, increasing by 1.9% y-o-y in December compared with 13% a year ago, accounting for 3% of the acceleration. Importantly, the return of confidence in the domestic currency, witnessed in H1:13, has strengthened since July. Indeed, the deposit dollarization ratio receded by a monthly average of bps between July and December to 19.3%. The strengthening of confidence followed the pledge by Saudi Arabia, the United Arab Emirates (UAE) and Kuwait of large financial support of USD bn -- of which USD bn is in the form of interest-free deposits in the CBE, USD bn worth of energy products, and USD bn in cash grants -- following the removal from power of Islamist President Mursi in early July. Credit growth (in FX adjusted terms) slowed to a -year low of.% y-o-y in December, squeezed out by banks investment in government paper. Private sector credit growth stood at.% y-o-y in December slightly above the end- outcome of 7.% y-o-y. However, adjusted for FX fluctuations, private sector credit growth decelerated to.% y-o-y in December from.% y-o-y a year earlier. The (FX adjusted) deceleration was mainly driven by the corporate segment (representing 7% of total loans and up 1.% y-o-y in December against.% y-o-y a year ago). In contrast, retail lending (FX-adjusted) rose by % y-o-y in December, broadly as at end- (.%). As a result, the lending penetration rate continued its downward trend, with the loan-to-gdp ratio at.1% in December, down from.3% at end- and.% in December 1. The sharp decline in lending penetration since 1 has been driven by the corporate sector, which has receded significantly to 19.7% of GDP in December from a high (by emerging market standards) of 1.7% in December 1. Importantly, credit growth continues to lag behind deposit growth, mainly due to banks rising investments in government domestic debt amid a volatile political and economic landscape. Indeed, since the start of the Revolution in January 11, the share of government securities held by banks in total deposits has increased by 17. pps to.%. NBG - South Eastern Europe and Mediterranean Emerging Market Economies - Weekly Report 9

11 Strategy and Economic Research Division Eolou Street 3 Athens, Greece Publications available at South Eastern Europe & Mediterranean Emerging Market Economies Weekly Report Greece: Monthly Macroeconomic Outlook Economic and Financial Bulletin Sectoral Reports (in Greek)