July 2012

Monthly Update

Politics

The Parliament of the Republic of Serbia confirmed the new coalition Government. The Prime Minister of the new

Government is Mr. Ivica Dacic and new Minister of Finance and Economy is Mr. Mladjan Dinkic. A new Government

of the Republic of Serbia to be consisted of seventeen Ministries and nineteen Members.

The new Minister of Finance and Economy announced that budget will be analyzed over the first month of the new

Governement's term of office, in order to submit budget revision and fiscal consolidation program, that will be in line

with anti-crisis measures program, to the Parliament.

The International Steering Group for Kosovo in the meeting held in Vienna reached a conclusion that the conditions

have been fulfilled for the termination of the supervised independence of Kosovo in September.

Financial Sector „Budget deficit will be reduced by RSD 100 billion in the following year and will amount to less than 4% of GDP while

in 2014 it is expected to be below 3%”, Minister Dinkic announced. The Minister added that public finance

consolidation measures will not imply only increasing taxes but also decreasing the Government spending.

In the end of July and beginning of August, Ministry of Finance and Economy, Public Debt Administration, sold more

than RSD 23 billion of Government Securities.

Positive inflation trend continued into the year 2012, as evidenced by a record-low inflation rate, states NBS. One of the

most significant recommendations of the National Bank of Serbia for this year is the strengthening of the overall stability

of the financial system. Aiming at protection from foreign exchange risk, NBS will continue with the policy of

stimulating larger consumption of dinar through the development of dinar-denominated securities market, creating

conditions for the introduction of new dinar products and protection from exchange rate risk. In July, consumer prices

edged up by 0.1%, while year-on-year inflation settled on 6.1%.

The substantial turnover of RSD 2.32 billion was realized on 12 July on the Belgrade Stock Exchange (EUR 20.2

million), owing to the fact that 44.2% shares of the Serbian Glass Factory Paracin were sold using the single price

method.

World Bank’s Country Manager for Serbia, Loup Brefort, has assessed that Serbia is not threatened by a catastrophic

scenario owing to the fact that this is the country with numerous resources. World Bank’s Country Manager for Serbia

noted that one of the first moves of the new Government ought to be the improvement of business environment and

facilitation of doing business.

Economy Serial production of the new model "Fiat 500 L" has commenced in Kragujevac-based Fiat’s factory. New model “500

L” will be launched in more than 100 markets worldwide, including USA and region of Asia and Pacific. The car maker

Fiat Automobiles Serbia (FAS) announced that it would hire at least 800 workers in Kragujevac by the end of this year.

The ICT industry records high growth and potential in the economy of the Republic of Serbia, being export-oriented,

which is reflected in the last year’s export of software totaling EUR 200 million.

Vranje-based company "Simpo" stated today that it has tripled its export of furniture into France since the beginning of

2012, with the amount of export currently totaling EUR 5 million.

In the first six months of 2012, NIS (Petroleum Industry of Serbia) realized a net profit of RSD 22 billion, in spite of the

fluctuations in the oil prices.

Foreign Direct Investments According to the ranking carried out by the Foreign Direct Investment Magazine, being the branch of Financial Times,

the free zone of Pirot holds 41st position in the list of 50 best zones of the world presenting one of the most successful

global free zones.

The Bulgarian Consortium "Glass Industry" announced that it would invest EUR 25 million into the modernization of

Paracin-based “Serbian Glass Factory” over the next two years.

The world’s biggest food company Nestle is going to invest RSD 0.5 billion (around EUR 5 million) into the

modernization of the Surcin-based factory of culinary products.

The US Company Continental Wind Partners (CWP) is eager to invest around EUR 450 million into the development of

the first wind farm in Serbia having the capacity of 300 MW, the company has reported.

July 2012

Macroeconomic data GDP Industrial

product. - June

2012/June 2011

CPI Unemployment

rate %

Current acc. Balance YTM on 31 July,2012

Currency

units/USD

Currency

units/EUR

2011 Q2

2012 2012* July/June

Ann.

%

May - last

12 months

% of

GDP 10Y gov. bonds Jul.12 year ago Jul.12 year ago

+1.6 -0.6 +0.5 -4.0 June 0.1 6.1 25.5 Apr -3,362.3 -11.2 6.96% 95.8 71.25 117.73 102.13 * Estimated value

• According to Statistical Office data, consumer prices rose 0.1% in July. Consistent with NBS expectations, year-on-year inflation

continued up and reached 6.1% in July, chiefly due to food price hikes.

• The monthly inflation figure came out low largely as a result of a seasonal fall in fruit and vegetable prices. As in the previous two

months, the strongest boost to year-on-year inflation came from the rising prices of food products and services. According to the

National Bank of Serbia’s estimate, year-on-year inflation rate is likely to rise further in the period ahead, reflecting the increase in

import prices, the anticipated growth in administered prices and the low base effect.

• The overall external trade in the Republic of Serbia for the period January – June 2012 amounted to:

- USD 14,735.9 million - which was a 4.1% decrease compared to the same period 2011;

- EUR 11,350.5 million - which was a 3.8% increase compared to the same period 2011.

The value of exports amounted to USD 5,377.1 million, which was 7.1% decrease when compared to the same period last year, while

the value of imports amounted to USD 9,538.8 million, which was 2.3 % decrease relative to the same period last year.

Expressed in Euros, the value of exports amounted to EUR 4,144.3 million, which was the decrease of 0.6%, compared to the same

period last year. The value of imports amounted to EUR 7,206.2 million, which was a 5.7% increase when compared to the same period

last year.

The deficit amounted to USD 3,981.7 million, which was an increase of 5.2% in relation to the same period last year. The deficit

expressed in Euros amounted to 3,061.9 million, which was an increase of 13.6% compared to the same period last year.

The export - import ratio equaled 57.4% and was lower if compared to the same period last year when it was 60.5%.

Exports in June 2012 amounted to USD 999.3 million, which was a 9.2% decrease when compared to the same month last year, while

the value of imports amounted to USD 1,490.8 million, presenting 9.0% decrease relative to the same month last year.

Source: Belgrade Stock Exchange, for period on annual basis

1,6%

7,0%

4,2%

23,7%

77,5%

Real GDP growth (%)

Inflation rate (CPI)

Budget deficit (%GDP)

Unemployment rate (%)

Foreign debt (%GDP)

2011

-0,6%

6,1%

7,1%

25,5%

83,7%

Real GDP growth (%)

Inflation rate (%)

Budget deficit (% GDP)

Unemployment rate (%)

Foreign Debt %

2012 July

6

7

8

9

10

11

12

13%Belgrade OverNight Index Average

0

250

500

750

1.000

1.250

1.500Belgrade Stock Exchange Indices

Belex 15 index Belex line index

July 2012

Currency, Interest rates and FDI

Key Policy Rates of National Bank of Serbia Current value Last change Date of last change Next board meeting

Key policy rate - 2w repo 10,50

+0,25% 9.8.2011 6.9.2012 Deposit facility interest rate 8,00

Lending facility interest rate 13,00

Source: National bank of Serbia

Source: National bank of Serbia

• NBS FX reserves amounted to EUR 10,140.7 million at end-July. During the month, the largest outflow from FX reserves originated

from the withdrawal of excess FX required reserves by banks of EUR 167.4 million net, compared to the June level. Furthermore, EUR

44.5 million were due to NBS interventions in the interbank FX market (IFEM), EUR 28.7 million to the settlement of obligations to

foreign creditors, and EUR 18.9 million to the settlement of obligations under frozen FX savings. The largest inflow came from the sale

of euro-denominated government securities of EUR 30.7 million, including grants – EUR 17.1 million, and the disbursement of loans –

EUR 15.5 million.

• The industrial production in the Republic of Serbia in June 2012, when compared to June 2011, decreased by 4% and in relation to

2011 average, it decreased by 2%. In the period January- June 2012, relative to the same period 2011, industrial production decreased by

4.2%.

Foreign Direct Investments in Serbia in period 2008 – 2011

Source: National bank of Serbia

6789

101112131415

%National Bank of Serbia Interest Rates

Key policy rate - 2w repo Deposit facility interest rate

Lending facility interest rate

60

70

80

90

100

110

120

130

In RSD Exchange Rates

EUR/RSD USD/RSD

1.824

1.373

860

1.827

6%

5%

3%

6%

0%

1%

2%

3%

4%

5%

6%

7%

0

200

400

600

800

1.000

1.200

1.400

1.600

1.800

2.000

2008 2009 2010 2011

FDI (net), millions EUR FDI (net), % GDP (right axis)

July 2012

Public Debt Report

Source: Public Debt Administration

Currency structure

Dynamics of public debt

Date

Internal Public Debt External Public Debt Total Public Debt

Direct Liabilities Indirect Liabilities Direct Liabilities Indirect Liabilities

31.01.2012 92,61 -2,75 -56,97 -28,73 4,15

29.02.2012 -65,44 -2,75 -59,96 5,49 -122,66

31.03.2012 179,86 -2,53 16,53 75,63 269,49

30.04.2012 97,49 57,25 43,72 26,22 224,67

31.05.2012 3,55 -2,75 250,68 28,09 279,56

30.06.2012 127,18 8,56 -39,10 73,16 169,80

31.07.2012 38,65 -1,73 84,24 56,91 178,07

Source: Public Debt Administration

5.211 5.146 5.325 5.423 5.426 5.554 5.592

533 530 528 585 582 591 589

7.1827.122 7.138 7.182 7.433 7.393 7.478

1.545 1.551 1.626 1.652 1.681 1.754 1.811

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

9.000

10.000

11.000

12.000

13.000

14.000

15.000

31/01/12 29/02/12 31/03/12 30/04/12 31/05/12 30/06/12 31/07/12

In m

ilio

ns

of

EU

R

Stock and Structure of Public Debt

External debt - indirect

liabilities

External debt - direct

liabilities

Internal debt - indirect

liabilities

Internal debt - direct

liabilities

RSD

17%

EUR

56%

USD

18%

CHF

1%

SDR

7%

Other *

1%

Currency Amount in RSD Share of outstanding

debt %

RSD 311.749.482.499 17,12%

EUR 1.014.424.208.743 55,70%

USD 333.524.239.121 18,31%

CHF 23.071.161.793 1,27%

SDR 123.288.955.344 6,77%

Other * 15.194.622.082 0,83%

Total 1.821.252.669.583 100,00%

July 2012

INTERNAL DEBT ANALYSIS EXTERNAL DEBT ANALYSIS

Source: Public Debt Administration

Source: Public Debt Administration

Source: Public Debt Administration

39,7%

39,6%

40,0%

40,5%

39,7%

40,2%

40,0%

39,0%

39,2%

39,4%

39,6%

39,8%

40,0%

40,2%

40,4%

40,6%

Internal Public Debt/Total Public Debt ratio

60,3%60,4%

60,0%

59,5%

60,3%

59,8%

60,0%

59,0%

59,2%

59,4%

59,6%

59,8%

60,0%

60,2%

60,4%

60,6%

External Public Debt/Total Public Debt ratio

5.2115.146

5.3255.423 5.426

5.5545.592

533 530

528

585 582591 589

480

500

520

540

560

580

600

4.900

5.000

5.100

5.200

5.300

5.400

5.500

5.600

5.700

In m

ilio

ns

of

EU

R

Internal Public Debt Dynamics

Direct liabilities Indirect liabilities

7.182

7.122 7.1387.182

7.433

7.3937.478

1.545

1.551

1.6261.652

1.681

1.754

1.811

1.400

1.450

1.500

1.550

1.600

1.650

1.700

1.750

1.800

1.850

6.900

7.000

7.100

7.200

7.300

7.400

7.500

7.600

External Public Debt Dynamics

Direct Liabilities Indirect Liabilities

42,8%

56,9%

0,2%

Currency structure of internal public debt

RSD EUR USD

46%

42%

1% 11%

External Public Debt currency structure

EUR USD CHF SDR

July 2012

Government Securities

Source: Public Debt Administration

Source: Bloomberg

Source: Bloomberg

12,70%

13,25%

14,35%

14,50%

14,45%

15,74%

15,01%

10%

11%

12%

13%

14%

15%

16%

17%

3M 6M 53W 18M 24M 36M 60M

Yield curve of latest auctions

12,70%

11,18%

12,92%

13,00%13,22%

14,84%

14,75%

10%

11%

12%

13%

14%

15%

16%

3M 6M 53W 18M 24M 36M 60M

Average yield curve

0,00%1,00%2,00%3,00%4,00%5,00%6,00%7,00%8,00%9,00%

95$

97$

99$

101$

103$

105$

107$

109$ Eurobond 2021

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