Former director of the Public Debt Administration: The state has now taken on debt according to the principle of necessity

The former director of the Public Debt Administration, Branko Drčelić, said today that Serbia could have taken on more debt earlier and made better use of the bonds when they entered the JP Morgan GBI-EM index in 2021, so that it is now repaying its debts at lower interest rates.

“I think that the state here followed the principle of ‘must’, it had to finance the maturity of the dinar bonds,” said Drčelić for the N1 portal.

He added that now a bond of about 100 billion dinars, issued in 2016, has come due, and that a total of 300 billion dinars of debt that must be paid is due in 2023.

“For several years, we lulled a bit, while the interest rates on borrowing were extremely low. However, the question is whether we should have borrowed more then, better take advantage of the fact that our bonds entered the JP Morgan GBI-EM index, 2021. year and borrow more in dinars for the purpose of pre-financing, so that we repay the debts now from sources taken at lower interest rates,” said Drčelić for the N1 portal.

He added that new borrowing never goes well with the public, and the question is how much budget space there was for issuing new securities for the purpose of pre-financing.

The debt market, as he said, is such that no matter what is done, there will be regret for not having borrowed more under more favorable conditions, or for having had to borrow under less favorable conditions at a certain moment in order to finance obligations that are due.

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This January, Serbia borrowed 1.75 billion dollars, selling on the international market two issues of Eurobonds, one due in five years, and the other in ten. The dollar debt was immediately converted into euro debt through “hedging transactions”.

The yield that investors achieve by investing in Serbian Eurobonds is six-month Euribor plus 2.9 percent for five-year bonds, or six-month Euribor plus 3.1 percent for ten-year bonds.

Drčelić said that the new indebtedness is reminiscent of the indebtedness in 2011, when Serbia issued Eurobonds for the first time and then there was a global crisis, there was speculation about the survival of the Eurozone and the solution to the Greek debt problem.

“For the last ten years, as long as we have been active on the securities market, it seems that the dollar market is more open and liquid for us and for other countries from the region of Eastern Europe such as Romania, Hungary, Bulgaria. It is easier for us to issue securities on the dollar market when there are moments of crisis,” said Drčelić.

He added that “it is interesting that even after so many years, Europe, when there are times of crisis, ‘closes’ the market for financing”.

Then, according to him, the hunger of dollar investors for securities and good demand will increase.

He reminded that in 2011, the euro market was closed for Serbia and the countries of the region, while the dollar market was open.

Through the first Eurobonds, according to him, Serbia then borrowed one billion dollars, but with a yield of even 7.5 percent, while the same issue was reopened in 2012 with a yield of 6.625 percent.

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Transferring the debt into euro through, as he said, “hedging transactions” was not possible in 2011 because the price was extremely high.

“The interest rate in euros would be around nine percent, fixed, which the public would not accept well at the time, so that was the reason for the debt to remain in dollars,” said Drčelić.

He says that it seems to him that Serbia may not have made sufficient use of the period before the pandemic.

“She didn’t even use the period from 2021, when we entered the JP Morgan GBI-EM index, because then we could have borrowed more in dinars, so now we are repaying the debts from funds, taken at lower interest rates in the local currency,” he said. he.

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