Serbia, KfW sign debt write-off agreement in exchange for environmental investment

Serbian Minister of Finance Mladjan Dinkic and Director of KfW office in Belgrade Elke Hellstern signed today an Agreement on a debt write-off between the Republic of Serbia and this German financial organisation.

Under the agreement, KfW will write off Serbia’s €25 million debt to Germany, as a creditor of the Paris Club of creditors in exchange for €5.5 million in investment.

Dinkic told at a press conference held after the signing that €5.5 million will be invested in environmental projects, i.e. in the third phase of the project of rehabilitating Serbia’s remote heating system.

He explained that Serbia’s current debt to Germany as a Paris Club country amounts to €454 million, one part of which is the so-called “Kosovo debt”, while the remaining Serbian debt equals to €369 million.

The Minister explained that the Serbian debt to Germany has been split into two parts. Namely, the first part is the debt to KfW amounting to €191 million while the rest belongs to German insurance bank Hermes, he said.

Dinkic recalled that Germany initiated this debt exchange earlier, after which the Serbian government came up with a proposal that the rest of the debt be replaced with investments in ecological projects, local infrastructure development projects in Serbian underdeveloped areas as well as completion of the highways on Corridor 10 in the Serbian south.

He expressed hope that negotiations with the German government will intensify and that acceptable agreements on replacement of the rest of the debt will be reached.

Dinkic stressed that six months after the government makes the transaction of €5.5 million to National Bank of Serbia’s (NBS) account, Germany will write off the €25 million debt along with due interest.

According to Dinkic, in five years of transition Serbia managed to reduce its public debt by more than four times. He noted that in 2001, Serbia’s public debt amounted to over 170% of GDP while today it equals 39% of GDP, and also expressed hope that it will reach the level of around 30% of GDP, or five times less than in 2001.

Dinkic added that the Ministry of Finance has sent a request to the World Bank today informing this organisation on Serbia’s readiness to return the Serbian debt of $580 million before due time in exchange for a three-year grace period for the rest of the debt.

Hellstern welcomed the signing of the agreement on debt conversion and pointed out that Serbia is one of KfW’s most important partners in southeastern Europe, since it has the crucial role in the stability and economic development of the entire region.

She explained that for that reason one of the goals of this financial institution is to support Serbia in its further progress and recalled that so far KFW has helped the realisation of a number of projects in Serbia with over €400 million, first of all in the energy, water supply and banking sectors.

According to Hellstern, today’s agreement on exchanging debt for investments will enable the achievement of two goals – that the Serbian government secure investments for infrastructure and that Serbia’s foreign debt be reduced.