Serb Finance Chief’s Next Mission: Pull the Country Out of Junk

Serbia’s new finance minister has a clear goal: to pull his European Union aspiring economy into investment-grade territory.

To do that, Serbia, which has had a junk rating since it emerged from the break up of former Yugoslavia, needs to focus on overhauling its banks, resolving legacy debt and keep economic growth vibrant, Finance Minister Sinisa Mali said in an interview on Thursday.

“Everything we do with our budget, fiscal and monetary policy is designed to fulfill all the criteria to join the list of countries with an investment-grade credit rating,” Mali said in an interview on Thursday. “Looking at the dynamics, 2020 looks more realistic. That will be icing on the cake after years of stabilizing the budget, lowering unemployment and reducing public debt.”

To follow Slovenia, the only former Yugoslav republic that is now investment grade, the Balkan nation of 7.1 million needs to create more jobs, stop an exodus of young people leaving the country and keep its public finances on sound footing — as it did when it ran a budget surplus from 2016 to 2018, he said.

Balancing Act

A call to proceed with structural reforms, including the sale of state-owned assets mandated under a three-year, non-financing program with the International Monetary Fund, has been a focus of reports on Serbia for years.

To keep economic growth at 4.4 percent last year, Serbian authorities have played a balancing act of keeping close ties with the EU, its main trading partner, and by luring investments from Russia, China and Turkey.

Another puzzle ahead of Mali is whether and when Serbia should return to the Eurobond market after six years.

The bond sale is just a financing option and “there is no need whatsoever for Eurobond sale,” Mali said. Serbia is “only trying to assess the interest rate path over coming years and whether it makes sense to sell a bond and repay some old, expensive debt.”

Those include $3.5 billion in two Eurobonds that mature in 2020 and 2021, as well as 1.1 billion euros ($1.27 billion) in debt to the Paris Club of sovereign lenders and 706 million euros to the World Bank.

If Serbia decides to issue, it should do so before the European Central Bank starts raising interest rates, Mali said. For now the government will be using any available fiscal surplus to repay old debts, he said.

Serbia is also keen on idea of finding a “strategic partner” for Komercijalna Banka, a lender among the nation’s top three, as the European Bank for Reconstruction and Development and World Bank’s IFC exercise their 252 million euro put option to exit the bank. The government is hiring Lazard Freres to prepare the sale, which may kick off as early as May this year, according to the minister.