February 26, 2018 / 8:28 AM / a month ago

Serbia expects to sign IMF deal by mid-year - Prime Minister

LONDON (Reuters) - Serbia expects to sign another deal with the International Monetary Fund (IMF) by mid-year that will focus on reforms to boost economic growth, Prime Minister Ana Brnabic said in an interview.

Serbian Prime Minister Ana Brnabic attends a joint press statement with Hungarian Prime Minister Viktor Orban (not pictured) in Budapest, Hungary, February 9, 2018. REUTERS/Bernadett Szabo

The country successfully completed a 1.2 billion-euro (1.05 billion pounds) three-year loan programme with the IMF earlier in February, but the fund said Belgrade had to improve its business climate and ailing infrastructure to catch up with Western European peers.

Brnabic said the government would start negotiations with the IMF in March and April on a new agreement that would not entail a financial support or a precautionary credit line.

“I think that by mid-2018 we will go into another arrangement with the IMF,” Brnabic told Reuters in an interview, saying the country still had “a long way to go” on reforms.

“A new arrangement with the IMF will also be a positive signal for investors, financial institutions and the credit ratings agencies,” she said.

She was speaking on Sunday at the Serbian Embassy in London, during her first official visit to Britain since taking over as the country’s first female prime minister in June 2017.

The new programme would likely be in the form of a Policy Coordination Instrument (PCI) - a programme intended for countries seeking to demonstrate commitment to a reform agenda or to unlock and coordinate financing from other official creditors or private investors.

“Our framework for the next arrangement will be based on more dynamic growth, and the structural reforms will be such to enable growth. We need at least 4 percent of annual growth to catch up with the other EU countries.”

Giving an update on eurobond issuance for the remainder of the year, Brnabic said Serbia had already met almost 30 percent of its gross financing needs for this year.

“For our own budget financing needs we won’t need eurobonds issuing,” she said. However, eurobonds may be an option for liability management to swap costlier, shorter-dated securities for less expensive longer-dated ones.

Brnabic also said the government was in negotiations with Euroclear, the international post-trade services system which increases transparency, and can draw in foreign portfolio investors.

“Our plan is that we will... reach an agreement in the next two years,” she said declining to give further detail.


Turning to planned privatisations, Brnabic hoped the country would make progress on dealing with part state-owned lender Komercijalna Banka [KMBN.BEL].

Belgrade holds 41.7 percent of the bank, while the European Bank for Reconstruction and Development (EBRD) and the World Bank’s International Finance Corporation (IFC) own stakes of 24.4 and 10.1 percent respectively.

While the government had been expected to sell its stake this year, Brnabic said there were a range of options.

“The Serbian government certainly will like to retain some ownership in Komercijalna Banka,” she said, adding she would discuss the issue with representatives of the EBRD, which wanted to sell its stake, at a meeting on Monday.

“We see whether we will reduce our share, or maybe increase our share even a little bit,” she said, adding Serbia could take on some of the EBRD stake. She expected both the EBRD and the IFC to sell down their stakes this year.

Belgrade was looking for a “strategic partner” to invest in the country’s second largest lender, and had been approached by a number of banks and investment funds, she added.

In December, Hungary’s OTP Bank said it was looking at Komercijalna Banka.

To reduce the burden of the public sector on state coffers, Serbia is trying to offload hundreds of state-run enterprises, including copper complex RTB Bor, Telekom Srbije and the Elektroprivreda Srbije power utility.

After several failed attempts to sell RTB Bor, Belgrade had embarked on a regeneration of the firm in recent years. The government was ready to take on a strategic partner, likely one of the firms Belgrade was already in contact with, said Brnabic.

“Our expectations is that we will close the full transaction by the end of this year.”

Reporting by Karin Strohecker; editing by John Stonestreet

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