The Governor of the National Bank of Serbia, Jorgovanka Tabakovic, rejected as incorrect the allegations that Serbia borrowed at a higher price by issuing Eurobonds on the international financial market than it would in the case of borrowing from international financial institutions. In a written statement, Tabakovic said that such allegations were based on incomplete and unprofessionally interpreted data.
– By issuing a seven-year Eurobond in the amount of two billion euros, we received another confirmation that the most prominent international investors, in the environment of the global economic crisis caused by the coronavirus pandemic, have full confidence in the future of Serbia’s economy and continued responsible economic policy – Tabakovic emphasized.
She said that collecting those funds in another way, including taking a loan from the International Monetary Fund, would have a much higher price. She also mentioned that the IMF funds offered through the RFI (rapid financing instrument) imply that the country that uses them has problems in financing the balance of payments and emphasizes that Serbia is not among such countries.
– Also, the withdrawal of these funds is not so favorable, except for relatively smaller amounts in a shorter period of time than Serbia managed to obtain by issuing Eurobonds – says Tabakovic.
She stated that taking these funds would mean for Serbia de facto entering into a new three-year stand-by arrangement with this financial institution, ie it would be equal to that arrangement, although Serbia does not need that type of financial arrangement in which it withdraws funds.
– This would certainly send a negative signal and could lead to an increase in the country’s risk premium in the future, ie borrowing costs, because potential investors could misunderstand that Serbia has certain macroeconomic problems in the long run, which is also not true – said the NBS governor.
She explained that the IMF loans have more favorable conditions for relatively smaller amounts and in the short term, because in that way that international financial institution discourages long-term borrowing of countries in larger amounts.
Therefore, says Tabakovic, it is not possible to simply compare the conditions under which certain countries borrowed from the IMF with the conditions under which the Republic of Serbia issued a Eurobond.
However, according to Tabakovic, if we were to compare the amount provided by Serbia on the international market (two billion euros) for a period of seven years at a coupon rate of 3.125 percent (yield rate of 3.375 percent) with the conditions from the RFI, the rates in this arrangement would amount to between three and four percent, with all other additional requirements and restrictions that an arrangement with the IMF would entail for a shorter period (up to five years).
Tabakovic says that the funds collected by the Eurobond can be used to repay the debt from the previous period and finance aid to the domestic economy, while the primary purpose of funds from the IMF is to finance balance of payments imbalances, ie to overcome liquidity problems, which Serbia does not have.
At the same time, the governor adds, it should be borne in mind that there is no basis to compare the conditions under which Eurobonds were issued during the previous year, with the conditions during the global economic crisis which caused an increase in interest rates for all countries that borrow.
– She also said that the global risk premium increased significantly, and that even in such conditions, the Republic of Serbia managed to reduce the cost of borrowing by 50 basis points during the auction, while the demand from international investors was extremely high. Certainly, when the conditions on the international market are met, Serbia will consider replacing the funds collected through Eurobonds under even more favorable conditions, as it did last year – stated Tabakovic.
It is especially important, as she said, that this rate is far lower than the rates at which Serbia borrowed before 2012, and in dollars, when, she says, irresponsible economic policy makers accepted the additional foreign exchange risk, which was a huge cost for all of us.
It cost us, the Governor notes, that the NBS and the Government of Serbia have been repaying inherited obligations under previous arrangements with the IMF since 2012 (the total paid costs of these arrangements exceeded 90 million euros), while since 2012 we have concluded with the IMF advisory arrangements without the use of financial resources, Srbija Danas reports.
