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Serbia: Accessing International Markets for The First Time

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The Serbia Policy Based Guarantee

The Serbia Policy Based Guarantee


The Private and Financial Sector Policy Based Guarantee (PFSPBG) is a continuation of the Private and Financial Development Policy Loan (PFDPL) series, which supported the structural reforms of the Government of Serbia. With the global financial crisis, the scope of the PFDPL series was adjusted and focus was placed on strengthening the banking sector through a new bank resolution framework. In order to enable Serbia to tap international markets for the first time, the third DPL was converted into a Policy Based Guarantee in the amount of EUR 300 million. An innovative financing instrument, the PFSPBG also doubled the maturity of Serbia’s borrowings, and has substantially reduced the interest paid.


The Government of Serbia was seeking a reform program that would aim to: (i) enhance the business enabling environment to encourage new private sector investments; (ii) strengthen financial discipline by enforcing hard budget constraints and continued reform of enterprise sector and public utilities; and (iii) build a more efficient and stable financial sector through continued restructuring of state holdings in banking and insurance sectors, enhancing crisis preparedness, and encouraging development of the capital markets. To support the program, in 2010, the Government requested the Bank’s assistance in tapping international markets, which Serbia had never done before in its own right. 


The Bank proposed to facilitate access to international markets by offering a policy based guarantee to a selected international lender. A policy based guarantee covers private lenders against the risk of debt service default by the sovereign government.

In the following months, Serbia ran an international competitive bid to select the lender; Société Générale was selected as it provided the lowest bid.In this process, ten global banks that bid had an opportunity to do a due diligence on Serbia, and the Serbian Debt Management Authority has had a chance to get familiar with the legal requirements of international tenders and global banks.


Increased market access

  • Serbia accessed international markets for the first time, doubling the maturity of its borrowings and substantially reducing the interest.

Enhancing the Business Environment

  • A new single window to register employees is established in the Pension and Health Funds – employers now have to visit only a single location as opposed to three different ones previously (Pension Fund, the Health Fund, and the National Employment Service). It is estimated that  the introduction of single window approach for registering workers would result in annual savings to businesses of approximately EUR 15 million.
  • A comprehensive review of regulations of business activities has been completed –192 unnecessary regulations were abolished and 304 recommended amendments to laws and regulations adopted, with an annual cost savings for businesses of approximately EUR 50.8 million.
  • All required regulations for the new Law on Bankruptcy have been adopted, so the Law is now fully operational. The new framework will reduce the time and cost of the bankruptcy process. Bankruptcy procedures were also completed for approximately 9,500 entities with accounts blocked for over three years.

Strengthening financial discipline of non private enterprises

  • In 2010, bankruptcy procedures were initiated for 162 socially-owned enterprises companies from the Privatization Agency portfolio.
  • The Registry of Regional Development Measures and Incentives is established in the Serbian Business Registers Agency – public subsidies to enterprises will now be quantified at the end of the current fiscal year, thus increasing transparency.

Building a stable and more efficient financial sector

  • A stress testing and recapitalization exercise for the banking system has been completed – as a result, the capital adequacy ratio of the banking system is maintained above 12 percent.
  • Introduction of a new bank resolution legal framework that allows for a faster and cheaper resolution of banks, while still protecting depositors.
  • Of the four majority state-owned banks, one has been privatized and two merged.
  • The Deposit Insurance Agency now has the process in place to pay out insured deposits within three days in case of bank failure.
  • Thanks to a review and amendments of the auctions processes, the maturity of T-bills was gradually extended from 3 months to 6, 12, 18, and 24 months – this longer yield curve is essential to support capital market development, which is key for domestic savings mobilization.


Bank Contribution

The World Bank provided a Policy-based Guarantee to the Government of Serbia, which enabled a borrowing of EUR 300 million from Société Générale.


The reforms underpinning the PFSPBG were implemented with the support of IFIs, such as the IMF and the EBRD, and other development partners engaged in private and financial sector development, including the USAID, KfW, EAR, USAID, SIDA, and SECO. In particular, the third component on the financial sector was designed in cooperation with and supported by the IMF. The EBRD provided capital support to banks that were found to be undercapitalized following the stress testing exercise.

Toward the Future

The Company Law and the Law on Enforcement and Security have undergone their first and second reading in Parliament. It is expected that when enacted, they will respectively reduce business compliance cost and speed up enforcement of court decisions by introducing the institute of professional enforcement officers (i.e. private bailiffs), in line with the policy program underpinning the PFSPBG. Finally, the Government of Serbia plans to access international financial markets independently for the first time in the coming year.


Rodoljub Pavicevic, Deputy Director of the Serbian Debt Management Authority: “This is the first operation of Serbia at the international commercial financial markets. This operation improves Serbia’s credibility at the international market, and we have been already approached by other partners that do similar operations. We can say that five months ago none of them would have been interested in such an operation.”

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