Exactly one month after Serbia, Croatia borrowed the same two billion euros as we took on the international financial market, but the neighboring country can count on a longer repayment period and twice lower interest rates. When asked by Nova.rs why we did so much worse than Croatia, economists Milojko Arsic and Goran Radosavljevic answered that we “made a tactical mistake when entering the market, and investors took advantage of that.”
The amount that the citizens of Croatia did better in the game “bond on bond” with Serbia is best shown by the amount that will have to be paid annually from the budget for interest on a debt of two billion euros.
Both countries borrowed the same amount on the international market – two billion euros – but with different repayment terms, and Croatia also received twice the interest rate.
According to the account of the professor of the Faculty of Economics, Finance and Administration Goran Radosavljevic for Nova.rs, the citizens of Croatia will pay 32.8 million euros every year until 2031 in the name of interest, ie “bond yield”.
The citizens of Serbia, on the other hand, have to set aside close to 68 million euros for interest in the next seven years, and still have to pay off the entire debt four years before Croatia.
According to the account of the professor of the Faculty of Economics, Finance and Administration Goran Radosavljevic for Nova.rs, the citizens of Croatia will pay 32.8 million euros every year until 2031 in the name of interest, ie “bond yield”.
The citizens of Serbia, on the other hand, have to set aside close to 68 million euros for interest in the next seven years, and still have to pay the entire debt four years before Croatia.
Radosavljevic, as well as Milojko Arsic, a professor at the Faculty of Economics in Belgrade, agree that the expensive difference in the price of borrowing arose after Serbia made a “tactical mistake” when it comes to appearing before investors with its bond.
It should be reminded that Serbia offered the bond on May 11, just a few days after the state of emergency was lifted due to the coronavirus epidemic.
“To issue a bond at a time when the whole world does not yet know what is happening, what the global economic downturn will be, while in other countries a state of emergency is still in force, when it is not known whether there will be another wave of the crown.” We did that, and Croatia waited and offered its security on June 10, when some kind of certainty was established on the world market,” explains Radosavljevic.
Milojko Arsic estimates that the rush in Serbia arose due to the preparations for the elections.
“We were in a hurry with broadcasting so that as much of the support measures from the budget could be implemented before the elections, so there was no time to wait,” Arsic told Nova.rs
Milojko Arsic emphasizes that, at the moment, macroeconomic trends in Croatia are worse than in Serbia.
“Croatia’s public debt reached 90 percent of GDP, precisely the growth of borrowing and the expected large decline in the economy due to the bad tourist season. Serbia’s public debt, again, will reach about 60 percent of GDP by the end of the year, maybe a little more if we additionally borrow for new support measures, which are announced for the second part of the year. Having that in mind, I think that this time investors had more confidence in Croatia as a member of the European Union, and that this was decisive in this round of borrowing,” said Professor Arsic.
His colleague Radosavljevic agrees that the “EU effect” played a role with investors, but reminds that Croatia still has only a degree better credit rating than Serbia, and that this certainly did not decide when investors made the decision to buy the bond.
“Our timing was extremely wrong, and now we pay as much as we pay. We could have chosen, but we made the wrong choice,” Radosavljevic estimates.
He reminds that Serbia did not have to enter the market with its bond, but to ask the money for measures to support the economy due to the damage from the coronavirus from international financial institutions, but that domestic officials decided not to accept such an offer, Nova reports.
