Serb finance minister sees public debt rising 11% to EUR 21bn at end-2013

By bne IntelliNews October 7, 2013

Serbia’s public debt will increase by 10.5% y/y reaching EUR 21bn at end-2013 while it will take three to four years to gradually reduce the level of public indebtedness, finance minister Lazar Krstic was quoted as saying by news agency Tanjug. The public debt-to-GDP ratio will thus equal to roughly 64% of the full-year GDP projection at end-2013, up from 59% of GDP a year earlier, according to IntelliNews calculations based on the latest finance ministry data. Krstic also said that about EUR 1bn, or 10% of total public expenditure, goes to paying interests on loans.

Serbia’s public debt rose 20.8% y/y and 0.4% m/m to EUR 19.1bn at end-August 2013, lifted by the country’s three Eurobond issues since end-September 2012, worth a combined USD 3.3bn. It equalled to 58.3% of the forecast GDP, the finance ministry has said earlier.

In July, the independent fiscal council also said the public debt will likely reach EUR 21bn this year and warned that the weakening of the local currency since end-May could result in an increase of the public debt-to-GDP ratio, as over 70% of Serbia public debt is denominated in euro and US dollars.

The government hopes that its new basket of austerity measures will help curbing the public debt growth as of 2016, deputy PM and leader of Serbia’s biggest party SNS Alksandar Vucic told local media earlier in October. This is a significant deterioration compared to the originally planned debt-reduction trajectory. According to the 2013 fiscal strategy published in November 2012, the public debt to GDP ratio was projected to stabilize in 2013 and start declining as of 2014 mainly due to smaller budget gap that is seen going down to 3.6% of GDP in 2013, to 1.9% in 2014 and to 1% in 2015. However, in July the government revised upwards its 2013 budget deficit target to 4.7% of GDP, due to lower than planned revenue and unbudgeted expenditures thus jeopardizing the planned debt reduction strategy.

The country is currently considering several borrowing options to finance its rising fiscal imbalances and reduce its financing costs. The latter include a new Eurobond issue and a loan from the UAE of up to USD 3bn. In addition, Serbia plans to borrow the equivalent of EUR 1.2bn on the domestic market in the fourth quarter of 2013, which is roughly 40% more than the planned domestic debt issuance in Q3.

The country's public debt increased significantly to 59% of GDP at end-2012 from 29% at end-2008, well exceeding the legal limit of 45% of GDP.

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