Serbia to early repay half of its debt to London Club - Government approves repayment of USD 400 million in late April

Serbia will repay early half of its debt to the London Club of commercial lenders by the end of April and reduce domestic borrowing to make its public-finance deficit more sustainable, Bloomber reports.

The government will repay $435.8 million to commercial banks, the Finance Ministry in Belgrade said in an e-mailed statement late Sunday (17 March 2013).

- At present, Serbia’s debt to the London Club amounts to $860 million - the ministry said, adding that the early repayment will lead to savings of 1.1 billion dinars ($12.9 million) in this year’s budget.

Prime Minister Ivica Dacic’s eight-month-old Cabinet wants to keep public debt below 65 percent of gross domestic product this year and lower it next year. According to fiscal rules, public debt should not exceed 45 percent of GDP. Public debt stood at 57.7 percent of GDP at the end of February, it said.

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

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.

Serbia can afford the early debt repayment due to “significant liquidity in the budget secured over the past few months, considering that fiscal policy measures have given very good results in bringing down public debt yields,” the ministry said.

The Finance Ministry also wants to reduce borrowing in the local market to make more cash available for corporate clients, as the economy struggles with its second recession in three years, according to the statement.

Serbia will sell dinar and euro-denominated debt equivalent to $1.3 billion between April and June, compared with $1.5 billion in the first three months of the year, according to Debt Management Agency’s borrowing calendar.

The government has also amended its request to Russia for budgetary support and is now looking for $500 million instead of $1 billion, only under terms more favorable than those Serbia is currently getting through Eurobond sales in international capital markets, the Belgrade newspaper Blic reported, citing Finance Minister Mladjan Dinkic.