02/05/2020

S&P Affirms Serbia’s Credit Rating at BB+ Despite Global Crisis Caused by COVID-19 Pandemic

As part of the extraordinary rating review conducted globally amid the crisis caused by the COVID-19 pandemic, Standard & Poor’s (S&P) affirmed Serbia’s long-term local and foreign currency sovereign rating at BB+, while revising outlook to stable from positive due to the outbreak of the coronavirus and its impact on the world economy and financial flows.

In its press release, S&P states that the affirmed credit rating is a result of the maintained macroeconomic stability that has been in place for years now, as well as of the record high level of FX reserves and sound public finances. The agency emphasizes in particular that the BB+ credit rating is underpinned by a credible monetary policy and moderate public debt that provides fiscal space for vigorous support to the economy’s recovery from the pandemic’s fallout. In their words, “Serbia is entering this crisis with significantly lower imbalances than it faced a decade ago”. This is evidenced by the significantly lower reliance on short-term inflows compared to the era after the global financial crisis when these were the predominant source of financing for the large twin deficits. Unlike the period before 2012 when average inflation in Serbia was two-digit, since 2012 the NBS has been keeping it at a low and stable level of around 2%. The stability of the Serbian banking sector has improved, with the system’s capital adequacy ratio at 23.4% on average and the share of non-performing in total loans cut to 4%. Economic growth is also supported by the rising lending activity.

S&P assesses that Serbia’s economic recovery after the pandemic will also depend on what happens in our key trading partners. There are risks, but Serbia’s economic growth in 2021 is nevertheless forecast at 5%, which will be more than enough for a full rebound.

“We are much better positioned to counter this unprecedented global crisis owing to the results achieved in the prior period – low inflation, a stable exchange rate, sound public finances, improved external position, high FX reserves and a robust financial system” said Governor Tabaković upon learning of S&P’s decision. “This is yet another confirmation that we were right in being so firmly committed to maintaining and strengthening macroeconomic, financial and fiscal stability”, added the Governor.

Governor Tabaković stressed that the adopted package of monetary and fiscal policy measures will make the effects of the crisis on our economic activity only temporary and that Serbia will record full economic recovery in 2021 owing to the maintained production capacities and living standards.

The Governor emphasized that the NBS was the first institution in the country and one of the first central banks in the region to have responded to the COVID-19 pandemic by taking concrete measures. “We lowered the key policy rate to make the financial conditions even more favourable, we ensured a breather to our citizens and businesses, and are providing support to banking sector liquidity and, hence, to corporate and household lending. We continue to carefully monitor and analyse all developments, ready to respond, if necessary, with the instruments at our disposal, and demonstrating once again that we remain a guarantor of stability no matter what the circumstances are“, concluded the Governor.

S&P also notes the record high foreign direct investment which more than fully covered the current account deficit in recent years. Most of foreign direct investment was channelled into tradeables, resulting in the diversification of exports and a significant increase in the share of exports in GDP.

Governor's Office