Serbia converted the obligations from the loan taken from the Abu Dhabi Development Fund in 2016, which was agreed in dirhams (the currency of the United Arab Emirates), with payment in US dollars, into euros, the Ministry of Finance announced. It is estimated that Serbia saved 26 million euros in interest in that way.
“Debt and liabilities under that loan, on which a fixed interest rate of 2.25% per annum was paid, in a swap transaction realized with two banks, Deutche Bank and BNP Paribas, were replaced in euros at an annual interest rate of 0.96%,” it is stated in the announcement.
Swaps are contracts for the exchange of cash flows of various origins. As it is added, that led to savings in interest costs until the maturity of the debt of about 26 million euros.
The Ministry notes that since December 2020, in accordance with international ISDA standards, Serbia has successfully realized four transactions and converted liabilities initially agreed in US dollars, Chinese yuan and dirhams into euros.
The first swap transaction was realized in December 2020, and liabilities based on Eurobonds, issued in US dollars, were converted into euros, and, as stated.
During February 2021, the second swap transaction was realized, by which the obligation based on the Debt Reprogramming Agreement between the state of Serbia and the Kuwait Investment Authority was converted from US dollars into euros.
Liabilities based on that rescheduled loan, agreed in dollars at an interest rate of 1.5%, Serbia will pay in euros at an interest rate of 0.393%.
In April 2021, a new swap transaction was concluded by which the loan with Export – Import Bank of China for the Belgrade Bypass Construction Project, which was initially contracted in Chinese yuan in 2018, was converted into euros with a negative interest rate.
The loan, on which a fixed interest rate of 2.5% per year in Chinese yuan was paid, was converted into euros at a fixed negative interest rate of minus 0.07%.
As a negative interest rate has been agreed, Serbia will not have any interest expenses in the first five years of the swap arrangement, which is valid until 2030, but will receive additional income from the banks with which the transaction was concluded.
It is noted that, thanks to the active management of public debt, the share of debt in US dollars in the total public debt was reduced from 33.9 percent, as it was at the end of 2016, to 10.5 percent at the end of September 2021.
This contributed to the reduction of both risks and costs arising from the significantly higher fluctuation of the US dollar exchange rate against the dinar, which increased from 99.63 to 104.5 dinars per dollar only from September 1 to November 24, 2021.
It is also pointed out that interest costs have been significantly reduced on the basis of obligations that have already been agreed, which is evidenced by the reduction in the average weighted interest rates from 5.7 percent in 2014 to 2.55 percent this year, Nova Ekonomija reports.
