Economist: Public Debt Not Too High, But Borrowing Pace, Purpose of Credits Worrisome

Serbia's Debt Lowered to 65.7 Percent of GDP at End of June

In an Aug. 1 statement for BETA, economist Goran Radosavljevic said that Serbia’s EUR38.2 million public debt in itself is not a problem but that the pace of government borrowing and the allocation of the funds is cause for concern.

“Serbia hasn’t been repaying its debts for a decade. The credits are being refinanced, [the authorities] take out a new loan to pay back an old one and draw extra funds on top. Now the state cannot meet the repayment deadline to the United Arab Emirates’ Development Fund, so it practically took out a new loan, with a 4.5 percent effective interest rate, which is more than double the original loan’s two percent, and quite high,” Radosavljevic said.

On July 31, an extraordinary sitting of the Serbian National Assembly adopted the Bill on amending the USD1 billion Loan Agreement with the UAE Development Fund and the Bill on amending the USD1 billion Loan Contract with the same institution, along with some dozen other bills regarding Serbia’s lines of credit, including a RSD42 billion loan from the Postanska Stedionica, the only Serbian bank majority-owned by the state, taken for the construction of new National Stadium.

The amended contracts with the UAE Development Fund postponed the repayment deadline of the USD2 billion debt for two more years. The original Loan Agreement for the first billion dollars was signed in 2014, yet there is no clear information available regarding what the funds were spent on. The second billion-dollar loan, taken out in 2022, was used to support the state budget.

The renegotiated terms of both loans entail a larger interest rate of four percent, plus an annual administrative surcharge of 0.5 percent of the unpaid loan principal.

Radosavljevic pointed out that in the case of loans for infrastructure projects, the interest rates with international financial institutions – such as the European Investment Bank, the World Bank and the European Bank for Renewal and Development – are far lower, between one and two percent, but that said institutions would never give Serbia money to refinance its debt to the UAE Development Fund.

The economist went on to say that, in 2012, Serbia had a governmental debt of EUR15.4 billion, while in July 2024 the amount was EUR 38 billion. While the average growth rate of the debt was two million a year, half of the total was accrued over the last few years – specifically since 2021 – which is “catastrophic pace of borrowing.”

Given that the country’s debt-to-GDP ratio is low, Radosavljevic said, there would be no problem if the funds were invested in projects that would ultimately “pay out.” However, the economist is skeptical whether “anything built in the last few years will be able to contribute to the GDP” and, if so, how much.

“I’m rather certain that the National Stadium and part of the [newly-constructed] freeways will not be able to earn back the money invested in them. The city of Belgrade is already subsidizing the Arena [sports hall] so it will surely subsidize the National Stadium as well, because [the Stadium] won’t be able to make enough to cover wages, let alone maintenance costs,” the economist concluded.