Serbia has significantly expanded its issuance of government securities, tripling the initial planned volume and borrowing through dinar ten-and-a-half-year bonds. The Public Debt Administration attributed this to high investor interest, with the first auction in January raising RSD 111.3 billion. Recently, the government borrowed another RSD 25.15 billion, leaving room for further borrowing, but not reaching the previously planned RSD 180 billion limit.
Originally, Serbia aimed to raise 20 to 30 billion dinars in auctions in January and March, but by January, it issued 120 billion dinars in bonds, selling 111.3 billion, and adding another 68.7 billion before the March auction, where it raised 25.15 billion dinars. This decision to expand the issuance comes amid political unrest, including protests and blockades that have lasted for over three months.
This is only part of the country’s debt for the year, with analysts predicting further refinancing activities, including Eurobonds, domestic bonds, and loans from commercial sources. Bond issues allow the government to borrow money, which it will have to repay with interest over time.
One reason for borrowing in dinars, despite lower euro interest rates, could be the desire of the National Bank of Serbia (NBS) and the Ministry of Finance to reduce the dinar supply to curb inflation. In February, inflation stood at 4.5%, at the upper end of the NBS’s target, and there has been no reduction in interest rates since September 2024.
There are multiple factors influencing this expansion of bond issuance. Analysts point to increased financing needs due to rising expenditures, including demands for higher school fees and support for farmers, as well as pressures from sanctions on NIS, issues with the Kostolac power plant, and the import of electricity due to the underperformance of EPS. Serbia’s debt renewal is necessary due to high existing debts and rising interest payments.
Despite the higher interest rates on dinar bonds compared to euro bonds, financial experts suggest that the government’s decision may be a form of debt consolidation, with the aim of reducing more expensive debt. However, there are concerns about the effectiveness of this strategy if the money raised is used for consumption rather than investment in productive projects.
The decision to expand bond issuance amid political instability has led to caution among investors. The Erste Group noted that while foreign investor participation in dinar bonds increased in January, the March auction saw a decline in interest, with only half of the planned amount being raised.
Consultants emphasize that investors are wary of countries like Serbia, where political and economic systems are still developing, making investments riskier. The expansion of the bond issue volume may signal instability and deter potential investors, as seen by the lack of interest in the increased volume.
As of January, Serbia’s public debt was at 44.2% of GDP. The IMF has not expressed concerns about the debt growth, and new economic forecasts for Serbia will be released in April. However, experts believe that minor adjustments to Serbia’s growth forecast will not significantly impact the country’s public debt trajectory.
