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Serbia to Make Early Payment of $400 Million on London Club Debt

Serbia will repay early $400 million to the London Club of creditors tomorrow as the government takes advantage of recent borrowing to retire older, more expensive credits.

The move will save “1.1 billion dinars ($13 million) for this year’s budget” and “about 1 to 2 billion dinars annually in the coming years,” the Belgrade-based Finance Ministry said in a statement today.

Junk-rated sovereigns, including Serbia and Hungary, have taken advantage of optimism about the global economic recovery, while extra liquidity from central banks push investors to higher-yielding assets. The London Club debt has an interest rate of 6.75 percent, compared with the 5.15 percent yield on the Balkan nation’s $1.5 billion sale of seven-year bonds in February.

The government has pledged to cut the budget deficit to 3.6 percent of economic output this year from 6.7 percent in 2012, while also reining in public debt.

“Fiscal policies contributing to decreasing of interest rates on public debt on the international and the domestic markets” will continue, the ministry said in the statement.

The London Club wrote down 62 percent of Serbia’s $2.7 billion debt in 2004, agreeing to a 20-year repayment, with interest at 3.75 percent for the first five years and 6.75 percent for the remaining 15 years. The debt matures in 2024.

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