The 2024 state budget envisages borrowing of about 6.5 billion euros, on rather unfavourable conditions. According to the assessment of the Fiscal Council, almost a fifth of the public debt will have a significantly higher interest rate than the old debt.
Finance Minister Siniša Mali had to justify 2024 budget projections to the International Monetary Fund (IMF) mission during their stay in Belgrade at the end of October, as part of the second consideration of the standby arrangement with Serbia.
Mali replied that the projections were encouraging and that our country kept its public debt under control.
“We are liquid, I am satisfied with the performance and the way we manage the public debt,” he pointed out.
The Law on the 2024 State Budget, which the Parliament adopted during the IMF’s official visit to Belgrade, foresees a public debt of 51.7 percent of GDP, which is less than 53.3 percent, a 2023 projection.
However, as stated by the Fiscal Council in its assessment of the 2024 budget, Serbia will most likely have to borrow around 6.5 billion euros this year (1.7 billion to finance the budget deficit and approximately 4.8 billion euros to repay existing debts). The Council warns of much less favourable borrowing conditions and the necessary caution of the state.
“Although the government has so far managed to respond to this challenge by finding relatively cheap sources of borrowing, they are not permanent. Almost a fifth of Serbia’s public debt will be financed in 2024 on significantly less favourable terms, which will lead to an increase in interest rate expenses in the medium term.
While the average interest rate for Serbia’s old debt was around three percent, current trends in the international financial markets indicate that Serbia could borrow at interest rates of six and seven percent, with some even more expensive loans being taken out last year, with an interest rate of up to nine percent,” the Council warns.
As they say, the costs of new borrowing have increased for all European countries, but Serbia remains at the top of Europe in terms of new, higher interest rates.
“This means that the aforementioned 6.5 billion euros of new debt in 2024 will have to be secured under less favourable conditions, that is, that almost a fifth of Serbia’s public debt will have a significantly higher interest rate than the old debt,” the Council points out.
A professor at the Belgrade Faculty of Economics, Milojko Arsić, says that new debt will adversely affect the Serbian business sector, particularly the so-called public debt crisis.
„We can see this happening in Greece. Public debt crisis leads to lower FDIs and domestic investments which in turn, causes a drop in the national GDP by an average of between five and ten percent,“ Professor adds.
For now, Serbia is close to experiencing a debt crisis, but it should be very cautious when it comes to further borrowing, Professor Arsić warns.
(Forbes Serbia, 08.01.2024)
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