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©The McGraw-Hill Companies, Inc.,2001
17- 1
Irwin/McGraw-HillIrwin/McGraw-HillIrwin/McGraw-Hill
Institute of Internaitonal Politics and Economics
Prof. dr Hasiba Hrustić
FOREIGN DEBT
OF SERBIA AND ITS
NEIGHBORS
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SERBIA AND ITS NEIGHBORS
NEIGHBOR COUNTRIES: Hungary Romania Bulgaria
Macedonia Albania Montenegro Bosnia and Herzegovina
Croatia
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Main Macroeconomic Indicators
GDP
General
government
debt
Inflation
Unmployment
Current account
balance
General government balance
Foreign loan
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Real GDP growth and General government debt
Real GDP Ann. % ch General government debt % of GDP
Country 2006 2007 2008 2006 2007 2008
Serbia (exc. Kosovo) 5.2 6.9 5.4 36.2 29.4 25.6
Hungary 4.1 1.2 0.6 65.6 65.8 73.0
Romania 7.9 6.2 7.8 12.4 12.7 13.2
Bulgaria 6.3 6.2 6.4 22.7 18.2 14.1
FYR of Macedonia 4.0 5.9 5.5 41.5 29.0 30.8
Albania 5.5 6.0 6.1 55.5 53.8 51.4
Montenegro 8.6 10.7 8.0 32.6 26.3 30.1
Bosnia and Herzeg. 6.7 6.8 5.5 21.3 18.5 16.0
Croatia 4.8 5.6 2.4 40.8 37.7 47.8
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Inflation and Unemployment rate
Inflation Ann. % ch Unemployment rate %
Country 2006 2007 2008 2006 2007 2008
Serbia (exc. Kosovo) 12.7 11.0 8.6 21.6 18.8 14.7
Hungary 4.0 7.9 6.1 7.5 7.4 7.7
Romania 9.1 6.6 4.9 12.4 22.4 22.5
Bulgaria 7.4 7.6 12.0 9.0 6.9 6.0
FYR Macedonia 3.2 2.3 8.3 36.0 34.9 33.0
Albania 2.4 2.9 3.0 13.9 13.4 12.6
Montenegro 3.0 4.3 9.2 14.7 11.9 10.7
Bosnia and Herzeg. 6.1 1.5 9.4 44.2 42.9 40.5
Croatia 3.2 2.9 7.4 11.1 9.6 12.4
EU -27 2.3 2.4 3.7 8.2 7.1 7.0
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Current account balance and
General government balance Current account balance % of GDP
General government balance % of GDP
Country 2006 2007 2008 2006 2007 2008
Serbia (exc. Kosovo) -11,5 15,9 -17,9 1,6 -1,9 -2.3
Hungary -7.5 -6.4 -7.2 -9.3 -5.0 -3.3
Romania -10.6 -13.6 -12.9 -2.2 -2.5 -5.2
Bulgaria -11.5 -18.6 -22.5 3.0 0.1 -3.2
FYR Macedonia -0.9 -3.0 -12.9 -0.5 0.6 -3.0
Albania -6.5 -10.5 -13.2 -3.3 -3.5 -5.2
Montenegro -24.7 -29.4 -35.4 2.7 6.4 4.3
Bosnia and Herzegovina -7.8 -7.8 -12.6 2.9 1.3 -2.0
Croatia -7.9 -8.7 -10.9 -2.2 -1.8 -2.8
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FOREIGN DEBT
the foreign loan is partly financed by incomes from foreign direct investments (FDI) attained in the process of privatization
- remittances from abroad
- foreign private lending
Rapid credit growth has been one of the main drivers of growth in the region in recent years
The rapid credit growth in the region in recent years has boosted domestic consumption
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The impact of the global international crisis and external financing
reduced economic activityenhanced foreign loan and trade deficitsimport dependencysignificant declined in foreign trade and
industrial productionoutput reduction this yearhigh levels of unemployment
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External Debt of Serbia and its Neighbors, 2008
Country External Debt
(bn USD) External Debt
Per Capita (USD)1 External debt (% of GDP)
Serbia (exc. Kosovo) 30,7 4,175 64.4
Hungary 164,2 15,728 108.9
Romania 99,1 4,609 49.5
Bulgaria 33,7 4,434 67.5
Macedonia 4,3 2,182 22.8
Albania 1,5 547 7.4
Montenegro 0,6 45 10.9
Bosnia and Herzegovina
7,6 1,667 25.3
Croatia 55,0 12,224 67.0
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Foreign-denominated loans
The combination of foreign bank domination of the banking system and weak fundamentals plaguing in region is definitely an issue in this region as well
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Foreign bank domination of
the banking system
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Foreign-denominated loans
Foreign-denominated loans allow potential homeowners to take out a loan originally denominated in low-interest-rate Swiss francs or euros instead of the high-interest-rate domestic currencies.
Due to the instability of the region’s currencies, foreign-denominated lending was popular with business lenders and other consumer lenders.
At the onset of the current finansial crisis, foreign banks operating started to repay loans from private companies, putting pressure on the exchange rate and creating an outflow of foreign currency
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Foreign bank domination of the banking system
As a result, about 1 billion exited Serbia between November 2008 and January 2009
Also, one of the effects of the crisis was that banks increased their spreads to a high extent; they doubled spreads, not only in Serbia, but also in other Eastern European countries.
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Short Macroeconomic Profile
strengths and weaknesses
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GDP Per Capita
Country GDP (nominal )Per Capita (USD)
Serbia (exc. Kosovo) 6,782
Hungary 15,542
Romania 9,291
Bulgaria 6,857
Macedonia 4,656
Albania 4,073
Montenegro 7,702
Bosnia and Herzegovina 4,625
Croatia 15,628
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Serbia
STRENGTHS
High GDP growth
Inflation decreasing
High level of FDI
High level of foreign exchange reserves
WEAKNESSES Slow progress in structural
reforms Slow privatisation of state-
owned companies Large public sector High unemployment Low competitiveness and weak
private sector Low, uncompetitive exports Large current account deficit Poor functioning of the court
system Corruption
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HUNGARY
STRENGTHSEU Member Preparations for euro membership under way
Budget deficit Declining inflatory pressures
Rising FDI and improving investment climate
WEAKNESSES
Large public debt
trade deficit
current account deficit
external debt increasing
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RomaniaSTRENGTHS
EU MemberHigh GDP growthBooming economyInflation decreasingHigh level of FDIHigh level of foreign exchange reserves
WEAKNESSES
Unemployment Weak private sector Fiscal loosening and rising
budget deficit Rapid credit growth Large trade deficit Large current account deficit Poor functioning of the court
system Corruption
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BulgariaSTRENGTHS
EU Member
High GDP growth Low public debt Preparations for euro membership under way
Declining inflatory pressures
Rising FDI and improving investment climate
WEAKNESSES
Large trade deficit Large current account
deficit external debt
increasing Private sector
external debt increasing
Poor functioning of the court system
Corruption
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STRENGTHS
EU candidate status High GDP growth Stable currency Low inflation Low external debt High level of foreign
exchange reserves
WEAKNESSES
Current account deficit Low competitiveness and weak private sector
Large public sector High unemployment Low exports Poor functioning of the court system
Corruption
Macedonia
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Albania
STRENGTHS
SAA signed Progress in privatisation High GDP growth Low inflation Unemployment decreasing Low external debt and low
servicing costs High level of foreign exchange
reserves
WEAKNESSES
Low competitiveness and weak private sector
High general government debt
Rapid credit growth Low exports Large current account
deficit Budget deficit Poor functioning of
the court system Corruption
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MontenegroSTRENGTHS
SAA signed High GDP growth Low inflation Rising FDI and
improving investment climate
Low external debt and low servicing costs
WEAKNESSES
Large public sector Low competitiveness and
weak private sector Low exports and large
current account deficit High interest rates Poor functioning of the
court system Corruption
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Bosnia and Herzegovina
STRENGTHS
High GDP growth High industrial production
growth Stable currency Low inflation High level of foreign
exchange reserves
WEAKNESSES Complex and expensive state
administration Slow structural reforms High unemployment Large public sector Low competitiveness and weak private
sector Rapid credit growth Low exports and large current account
deficit Poor functioning of the court system Corruption
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CroatiaSTRENGTHS
EU candidate status Ambitious privatisation agenda
Low inflationHigh level of foreign exchange reserves
WEAKNESSES
Heavy reliance on seasonal tourism receipts
Large trade deficit Large current account
deficit Large external debt Large government debt Budget deficit Poor functioning of
the court system
Corruption
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Development Priorities
Macroeconomic stability
Privatisation of strategic companies still not completed
Investment in infrastructure needed
Unemployment, current account
deficit, inflation,debt
Industrial production, export
Importance of tourism increasing
Weak SMEs sector