Bloomberg News

Serb Current-Account Deficit Has ‘Limited’ Impact, Markovic Says

October 26, 2011

Oct. 26 (Bloomberg) -- Serbia’s current-account deficit is sustainable and will have a “limited impact” on the dinar as companies import technology and machinery to produce exports, central bank Deputy Governor Bojan Markovic said.

The shortfall measuring money flowing into and out of the country widened 3.5 percent in the first eight months to 1.7 billion euros ($2.36 billion) compared with the year-earlier period. The gap was about 6 percent of gross domestic product, below the International Monetary Fund’s forecast of 7.6 percent.

The deficit at this level “is used for investment and especially by export-oriented industries and therefore is sustainable and has a limited impact” on the currency, Markovic said today in an interview in the Croatian town of Dubrovnik.

Europe’s slowing economy and the ongoing debt crisis have already weighed on demand for Serbian exports. Growth in the Balkan nation, which aspires to become a European Union candidate this year, slowed to 2.2 percent in the second quarter after a revised 3.7 percent growth in the first three months.

The dinar is the fourth-best performing currency in the world according to Bloomberg data, with year-to-date gains of 6.05 percent against the euro. It traded at 100.03 per euro at 1:51 p.m. in Belgrade.

The IMF sees the current-account deficit widening to 8.8 percent of GDP in 2012, inching down to 8.3 percent of GDP in 2013. The real effective exchange rate of the dinar, its weighted average relative to other major currencies adjusted for inflation, is expected to show an appreciation of 10.5 percent in 2011, 1 percent in 2012 and 1.5 percent in 2013, according to the Washington-based lender.

Rising Investments

The Balkan nation’s balance of payments showed foreign direct investment doubled to 1.1 billion euros in the first eight months from a year earlier, while portfolio investment, mainly in the government debt issues, expanded more than tenfold to 904 million euros.

Markovic said the Belgrade-based National Bank of Serbia has prepared a “contingency of measures for every scenario,” in case capital outflows become an issue because of Europe’s debt crisis. He gave no details.

Serbia secured an 18-month precautionary loan from the IMF worth nearly 1 billion euros, which the country may need to use if a series of risks materialize, including euro-area tensions that constrain external financing prospects, according to the IMF.

--Editors: Alan Crosby, Douglas Lytle

To contact the reporters responsible for this story: Jasmina Kuzmanovic at jkuzmanovic@bloomberg.net Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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