GUIDED by the best international practice of active public debt management, and in order to protect against various forms of financial risks, as well as further reduce borrowing costs, the Republic of Serbia realized another, fourth in a row, swap transaction and thus obligations under the loan taken from the Development Fund Abu Dhabi, in 2016, initially contracted in dirhams, with payment in US dollars, converted into euros.
Debt and liabilities on the basis of the said loan on which a fixed interest rate of 2.25% per annum was paid, in a swap transaction realized with two renowned banks with which the Republic of Serbia has signed an ISDA Master Agreement, Deutche Bank and BNP Paribas, were exchanged in euros annual interest rate of 0.96%, which results in cost savings for interest until the maturity of the debt of about 26 million euros, or 3 billion dinars.
Since December 2020, the Republic of Serbia, in accordance with the international standards ISDA (International Swaps and Derivatives Association), has successfully realized four hedging transactions and converted liabilities initially agreed in US dollars, Chinese yuan and dirhams into euros.
The first swap transaction was realized in December 2020, and liabilities based on Eurobonds issued in US dollars were converted into euros, with savings of around 11.6 billion dinars.
During February 2021, the second swap transaction was realized, by which the obligation based on the Debt Rescheduling Agreement between the Republic of Serbia and the Kuwait Investment Authority was converted from US dollars into euros. Obligations based on the mentioned rescheduled loan, agreed in dollars at an interest rate of 1.5%, the Republic of Serbia will pay in euros at an interest rate of 0.393%, which will save about 2 billion dinars.
In April 2021, a new swap transaction was concluded by which the loan with Export – Import Bank of China for the Belgrade Bypass Construction Project on the E70 / E75 highway, which was initially contracted in Chinese yuan in 2018, was converted into euros with a negative interest rate. The said loan, on which a fixed interest rate of 2.50% per annum in Chinese yuan was paid, was converted into euros at a fixed negative interest rate of -0.07% resulting in interest savings of around 4.2 billion dinars. As the negative interest rate has been agreed, the Republic of Serbia will not have any interest expenses in the first 5 years of the swap arrangement, which is valid until 2030, but will receive additional income from the banks with which the transaction was concluded.
The successful implementation of these transactions has reduced the risk of foreign exchange rate fluctuations against the dinar, in order to minimize the impact of changing it on servicing and public debt.
To remind, thanks to active public debt management, the share of debt in US dollars in the total public debt was reduced from 33.9%, as it was at the end of 2016, to 10.5% at the end of September 2021. This contributed to the reduction of both risks and costs arising from the significantly higher fluctuation of the US dollar exchange rate against the dinar, which increased from 99.6303 to 104.5563 only from September 1 to November 24, 2021.
Interest expenses on the basis of liabilities that have already been contracted have also been significantly reduced, which is supported by the fact that the weighted average interest rate was reduced from 5.70% at the end of 2014 to 2.61% at the end of September 2021. After the realization of the mentioned fourth transaction, the average weighted interest rate was additionally reduced and now amounts to 2.55%.
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