Mali: Millions of savings from lower interest rate bonds

The Minister of Finance of the Government of the Republic of Serbia, Siniša Mali, stated, today, that millions of savings had been realized from the sale of the remaining part of previously issued bonds on the London Stock Exchange, and that, consequently, due to such actions on the international financial market, more expensive loans will be replaced by the cheaper ones. He estimated that this was a reflection of the Government’s responsibility towards the citizens of Serbia. Interest savings for ten years amount to € 530 million.

“Yesterday, the Republic of Serbia achieved a big victory in the international financial market, where we issued a ten-year bond in the amount of EUR 550 million and achieved an interest rate, or yield, of 1.25 percent. This is a great victory and a historic moment since we have never achieved a lower interest rate when selling them, and this is important news as more expensive loans are being replaced by cheaper ones and public debt does not increase“, said Minister Mali.

The Republic of Serbia achieved these results at yesterday’s reopening of the existing Eurobond issue, Serbia 2029, issued on 26 June this year.

Mali added that the intention was to reduce interest rates on securities through economic reforms and through reducing country risk and investment.

“We shall continue with this policy. We replace the old loans by new, cheaper ones, without raising public debt, thus saving money and showing responsibility towards the citizens of Serbia“, stated the Minister.

According to him, with this money, a dollar debt, which is due in February, is being paid off, while that loan was taken at a significantly higher rate of 4.9 percent, and, in this way, the share of dollar debt in total public debt will be reduced too.

“What is particularly important is that we are paying off the debt that is due in February next year, which is in dollars. In this way, we will reduce the debt share in dollars to below 20 percent. At the beginning of this year, the share of dollar debt in total public debt was 26 percent. We are now going below 20 percent, which is our goal – to reduce our risk, as we cannot influence dollar fluctuations. It is acceptable to have debt in euros or dinars, a small distribution of debt in different currencies is good, but not as much it used to be“, stated the Minister, assessing that “we handle our public finances in a very responsible, careful and accurate manner. ”

Mali stressed that, in 2016, the cost of capital was much higher, and that the average weighted interest rate was 4.5 percent, while, now, with this issue, it is 3.27 percent.

“Therefore, on our total debt, instead of 4.5 percent, our interest rate expense today is 3.27 percent. These constitute millions of savings for our budget, instead of paying for expensive interests and loans, we are paying them back now. We are also opening the space for increase of salaries and pensions, for inreased investments in infrastructure projects and, in this way, we demonstrate how seriously we are dealing with public finances“, stated Minister.

He characterized this moment as historical since a lower interest rate on securities of the Republic of Serbia has never been realized to date.

“This is yet another great confirmation of the success of economic reforms in addition to the security and confidence that foreign investors have when investing in Serbia. We auctioned over 150 of the largest mutual funds, pension funds, insurance companies that wanted to invest in our securities. The demand was three times more than the offer.”, Mali stated.

He pointed out that it is important to emphasize that Serbia does not raise public debt in this way.

“This money that we received yesterday is very cheap money, and we will use it to repay the bond, which matures in February next year, with an interest rate of 4.9 percent. So instead of paying 4.9 percent, we are now paying 1.25 percent, and when the movement of the cost of capital as well as interest rates is observed, it may be seen that it decreases month after month, year after year, which is a confirmation of the country’s security and investment, a confirmation of good credit rating, confirmation of the success and progress of our economic reforms”, he concluded.