S&P assigns B+ long-term sovereign rating to Serbia.Serbia received its first credit rating as S&P
assigned the country ‘B+’ long-term foreign currency rating and ‘B’ short-term rating with stable
outlook for both ratings. In addition, the rating agency assigned ‘B+’ long-term senior unsecured debt
rating to the bonds that Serbia plans to issue in the near term in exchange for the USD 1.08bn debt to
the London Club of private creditors. The rating came shortly after Serbia made USD 40mn goodwill
payment in line with the agreement reached with the London Club and was expected after central bank
governor Radovan Jelasic announced last Friday (Oct 29) that the rating was a ‘matter of minutes”
rather than days. In its statement S&P noted expectations for continuation of the current cautious fiscal
policies and the ongoing progress with structural reforms. On the other hand, the credit rating was
constrained by considerable political risks as well as vulnerable external position. The rating agency
underlined the internal rifts among the minority democratic coalition and pointed major unresolved
issues such as the future of Kosovo, the future of the state union with Montenegro as well as the
inability of the government to meet its obligations to the ICTY. There are concerns for disruptions of
the undertaken reforms in case there are early elections in 2005, although S&P expects that potential
disruptions will be short-lived. According to S&P analyst Beatriz Merino, stable political environment
will aid the implementation of the reform programme and thus contribute for the increase in FDI and
improvement of the country’s competitiveness, which is a prerequisite for rating upgrades.
IntelliNews comment: The rating of S&P is in line with our expectations and reflects declining
indebtedness, robust foreign reserve position and ongoing structural reforms (in particular in the
financial sector), on the one hand and significant political risks (within both the country and the state
union) and surging CA deficit, on the other. The rating is two notches below the one, which was
assigned to Macedonia in June and is in line with the higher debt/GDP and CA deficit/GDP ratios as
well as the greater uncertainty of Serbia with regard to EU integration.