IrwinMcGrawHill

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Institute of Internaitonal Politics and
Economics Prof. dr Hasiba Hrustic
FOREIGN DEBT OF SERBIA AND ITS NEIGHBORS
Irwin/McGraw-Hill
Irwin/McGraw-Hill
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SERBIA AND ITS NEIGHBORS

• NEIGHBOR COUNTRIES
• Hungary
• Romania
• Bulgaria
• Macedonia
• Albania
• Montenegro
• Bosnia and Herzegovina
• Croatia

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Main Macroeconomic Indicators

• GDP
• General
• government
• debt
• Inflation
• Unmployment

• Current account
• balance
• General government balance
• Foreign loan

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Real GDP growth and General government debt
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Inflation and Unemployment rate
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Current account balance and General government
balance
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FOREIGN DEBT

• the foreign loan is partly financed by incomes
  from foreign direct investments (FDI) attained in
  the process of privatization
• - remittances from abroad
• - foreign private lending

• Rapid credit growth has been one of the main
  drivers of growth in the region in recent years
• The rapid credit growth in the region in recent
  years has boosted domestic consumption

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The impact of the global international crisis and
external financing

• reduced economic activity
• enhanced foreign loan and trade deficits
• import dependency
• significant declined in foreign trade and
  industrial production
• output reduction this year
• high levels of unemployment

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External Debt of Serbia and its Neighbors, 2008
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Foreign-denominated loans

• The combination of foreign bank domination of the
  banking system and weak fundamentals plaguing in
  region is definitely an issue in this region as
  well

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Foreign bank domination of the banking system
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Foreign-denominated loans
Foreign-denominated loans allow potential
homeowners to take out a loan originally
denominated in low-interest-rate Swiss francs or
euros instead of the high-interest-rate domestic
currencies. Due to the instability of the
regions currencies, foreign-denominated lending
was popular with business lenders and other
consumer lenders. At the onset of the current
finansial crisis, foreign banks operating started
to repay loans from private companies, putting
pressure on the exchange rate and creating an
outflow of foreign currency
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Foreign bank domination of the banking system

• As a result, about 1 billion exited Serbia
  between November 2008 and January 2009
• Also, one of the effects of the crisis was that
  banks increased their spreads to a high extent
  they doubled spreads, not only in Serbia, but
  also in other Eastern European countries.

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• Short Macroeconomic Profile
• strengths and weaknesses

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GDP Per Capita
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Serbia

• STRENGTHS
• High GDP growth
• Inflation decreasing
• High level of FDI
• High level of foreign exchange reserves

• WEAKNESSES
• Slow progress in structural reforms
• Slow privatisation of state-owned companies
• Large public sector
• High unemployment
• Low competitiveness and weak private sector
• Low, uncompetitive exports
• Large current account deficit
• Poor functioning of the court system
• Corruption

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HUNGARY

• STRENGTHS
• EU Member
• Preparations for euro membership under way
• Budget deficit
• Declining inflatory pressures
• Rising FDI and improving investment climate

• WEAKNESSES
• Large public debt
• trade deficit
• current account deficit
• external debt increasing

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Romania
STRENGTHS EU Member High GDP growth Booming
economy Inflation decreasing High level of
FDI High level of foreign exchange reserves

• WEAKNESSES
• Unemployment
• Weak private sector
• Fiscal loosening and rising budget deficit
• Rapid credit growth
• Large trade deficit
• Large current account deficit
• Poor functioning of the court system
• Corruption

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Bulgaria

• STRENGTHS
• EU Member
• High GDP growth
• Low public debt
• Preparations for euro membership under way
• Declining inflatory pressures
• Rising FDI and improving investment climate

• WEAKNESSES
• Large trade deficit
• Large current account deficit
• external debt increasing
• Private sector external debt increasing
• Poor functioning of the court system
• Corruption

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Macedonia

• STRENGTHS
• EU candidate status
• High GDP growth
• Stable currency
• Low inflation
• Low external debt
• High level of foreign exchange reserves

• WEAKNESSES
• Current account deficit
• Low competitiveness and weak private sector
• Large public sector
• High unemployment
• Low exports
• Poor functioning of the court system
• Corruption

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Albania

• STRENGTHS
• SAA signed
• Progress in privatisation
• High GDP growth
• Low inflation
• Unemployment decreasing
• Low external debt and low servicing costs
• High level of foreign exchange reserves

• WEAKNESSES
• Low competitiveness and weak private sector
• High general government debt
• Rapid credit growth
• Low exports
• Large current account deficit
• Budget deficit
• Poor functioning of the court system
• Corruption

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Montenegro

• STRENGTHS
• SAA signed
• High GDP growth
• Low inflation
• Rising FDI and improving investment climate
• Low external debt and low servicing costs

• WEAKNESSES
• Large public sector
• Low competitiveness and weak private sector
• Low exports and large current account deficit
• High interest rates
• Poor functioning of the court system
• Corruption

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Bosnia and Herzegovina

• WEAKNESSES
• Complex and expensive state administration
• Slow structural reforms
• High unemployment
• Large public sector
• Low competitiveness and weak private sector
• Rapid credit growth
• Low exports and large current account deficit
• Poor functioning of the court system
• Corruption

• STRENGTHS
• High GDP growth
• High industrial production growth
• Stable currency
• Low inflation
• High level of foreign exchange reserves

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Croatia

• STRENGTHS
• EU candidate status
• Ambitious privatisation agenda
• Low inflation
• High level of foreign exchange reserves

• WEAKNESSES
• Heavy reliance on seasonal tourism receipts
• Large trade deficit
• Large current account deficit
• Large external debt
• Large government debt
• Budget deficit
• Poor functioning of the court system
• Corruption

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Development Priorities
Macroeconomic stability
Investment in infrastructure needed
Privatisation of strategic companies still not
completed