Serbia to Cut 2013 Domestic Debt Goal as Banks Help Refinancing

Serbia will scale back its domestic borrowing program for the rest of 2013, relying on banks’ ample liquidity to roll over maturing liabilities.

The government has met 75 percent of its external debt target and 70 percent of the domestic goal through May, the Debt Management Agency in the capital, Belgrade, said in an e-mailed statement yesterday. It has also repaid 60 percent of the total due this year, including early redemption of part of outstanding debt to the London Club of bank creditors without expanding gross financing needs, according to the agency.

“The level of debt operations in the local market will shrink in the coming months in comparison with the first five months of 2013,” the agency said. “The banking sector in Serbia is liquid, with a high capital-adequacy ratio, so there will be no problem to roll over local securities maturing in the coming period.”

Serbia needs to repay 208 billion dinars ($2.4 billion) in outstanding Treasury bills by the end of 2013, according to data compiled by Bloomberg. The government will spend 190 million euros ($248 million) tomorrow for an installment of its debt to citizens, whose savings were frozen in the early 1990s. Another 100 million euros will be repaid by the end of 2013.

After the May 31 repayment, “the outstanding cash will total 1.6 billion euros,” which is “enough to finance all public debt liabilities until the end of the year,” the agency said. Budgeted cash reserves of $320 million “in the financing plan can be used to cover an additional budget deficit.”

Deficit Risks

The fiscal gap hit 62 percent of the full-year target in the four months through April and the International Monetary Fund said the full-year shortfall may top 8 percent of gross domestic product if policies remain unchanged. The government targeted a deficit of 3.6 percent of GDP and will revise the budget next month, with new savings measures to curb the gap.

Junk-rated Serbia borrowed $3.25 billion in three Eurobond sales since September, taking advantage of optimism about the global economic recovery as extra liquidity from central banks pushed investors toward higher-yielding assets.

Under the 2013 budget, Serbia put its gross financing needs at 526 billion dinars, excluding a 28 billion dinar reserve, which was “planned for a cash stock increase,” the government said. It raised 184.6 billion dinars in debt sales at home through May 30, with a total of 265 billion dinars planned for 2013. It also borrowed $1.5 billion of the $2 billion planned through a Eurobond sale this year.

Prime Minister Ivica Dacic’s 11-month old Cabinet is counting on the first, $300 million loan tranche from Russia for its budget “in the coming months” while the remaining $200 million will be available after Serbia clinches a loan program with the IMF, according to the Debt Agency.

To contact the reporter on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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