Serb Finance Minister Wants to Repay $430 Million Early

Serbia could repay as much as $430 million of its foreign debt by the end of April if the government approves the Finance Ministry’s proposal to take advantage of “significant budget liquidity.”

Finance Minister Mladjan Dinkic will ask the government to approve the early repayment of past “expensive credit” after Serbia posted a consolidated fiscal surplus of 3.8 billion dinars ($44 million) in January, the Finance Ministry said in a March 9 e-mailed statement.

“Considering that fiscal policy measures have yielded exceptionally good results in lowering the interest rate on our public debt both in international and domestic financial markets, the Finance Ministry believes conditions have been met for early repayment of past expensive credits,” it said.

Junk-rated sovereigns, including Serbia and Hungary, have taken advantage of optimism about global economic recovery while extra liquidity from central banks push investors to higher-yielding assets.

Serbia has borrowed $3.25 billion in three Eurobond sales abroad since September, equivalent to 8 percent of gross domestic product, as the government tries to finance the budget gap and service maturing debts.

Bond Sale

The Balkan nation sold $1.5 billion of seven-year bonds with a yield of 5.15 percent last month, after paying 5.45 percent on $750 million in five-year notes in November and 6.625 percent on $1 billion worth of 10-year bonds last September.

Yields on Serbia’s seven-year bonds rose to 4.391 percent by 1:39 p.m. in Belgrade from 4.920 percent on Friday, while yields on the country’s 10-year notes were up at 5.229 percent from 5.208 percent on Friday, according to data compiled by Bloomberg.

The early repayment will “thus bring savings in current budget expenditures both this year and in the coming years as it will ensure lower spending on interest-rate payments,” the ministry said. Serbia needs $1 billion to repay interest rates in 2013.

The early repayment is a good “debt management practice” rather than a “turning point toward a lasting reduction in public debt,” which rose 13.5 percentage points in 2012 to 63 percent of GDP, Serbia Fiscal Council Chairman Pavle Petrovic said in Belgrade today.

“Easy borrowing abroad is postponing necessary reforms” and the global market situation may easily change, Petrovic said.

Budget Deficit

Serbia reported a 6.99 billion-dinar budget gap in January. The consolidated result, which includes local governments, pension and health funds, showed a surplus of 3.8 billion dinars in January as total revenue reached 116 billion dinars and spending 112.2 billion dinars, the ministry said. Revenue rose after the government gave companies three months to pay delayed social contributions and property taxes.

Prime Minister Ivica Dacic’s eight-month-old Cabinet is seeking to narrow this year’s fiscal deficit to 3.6 percent of economic output from more than 6 percent in 2012.

It also wants to curb price increases and restart growth after the economy contracted an estimated 1.7 percent in 2012 as the euro region’s financial crisis hurt demand for its products and cut foreign investment.

The International Monetary Fund suspended a $1.3 billion precautionary loan with Serbia in February last year after the previous government failed to meet deficit and debt targets.

The IMF told Serbia after talks in November to implement measures to cut debt without choking economic growth, citing an unsustainable fiscal gap, volatile inflation and high unemployment.

A mission from the Washington-based lender will arrive in Belgrade on May 8 for two weeks of talks, the IMF’s resident representative Bogdan Lissovolik said in an e-mail.

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