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Serbian Government introduces possibility to increase the market liquidity through the state guarantee scheme

Following the wave of similar legislation adopted in the US and EU countries, the Serbian government introduced a possibility to support the market liquidity, which is expected to be deteriorated due to the state of emergency introduced in response to the COVID 19 pandemic, through the provision of the state guarantees. However, unlike the measures in the aforementioned countries, the current Serbian legislation is not explicitly focusing on providing support only to the SMEs.

Namely, as a part of the measures of the Government of the Republic of Serbia aimed at injecting additional funds into the Serbian economy, the Government of the Republic of Serbia adopted on 6 April 2020 the Regulation on Additional Indebtedness during the Term of the State of Emergency arising out of COVID 19 caused by SARS-COV-2 Virus by Obtaining of the Loans, Emission of the State Securities on Domestic and International Financial Market and Providing of the Guarantees of the Republic of Serbia (the “Regulation”). The Regulation entered into force and started to apply as of 7 April 2020.

The Regulation regulates initiation of the proceedings on the additional indebtedness of the Government of the Republic of Serbia by obtaining the loans, emission of the state securities on domestic and international financial market for the purpose of financing of the budgetary deficit, maintaining of the liquidity, and for the purpose of securing the necessary funds for provision of financial support and enforcement of measures aimed at mitigating effects of the COVID 19 pandemic, as well as for providing guarantees of the Republic of Serbia during the state of emergency in Serbia.

The Regulation provides that the aforementioned activities may be undertaken by the Republic of Serbia during the term of the state of emergency. In addition, the Regulation envisages that the value of additional indebtedness of the Republic of Serbia may exceed the amount determined by the Serbian Law on Budget for 2020, which is set at the value of RSD 1,334.7 billion (i.e., approx. EUR 11.2 million). The current budget of the Republic of Serbia was prepared on the basis of the assumption that the economic growth of the Republic of Serbia will be 4 % in 2020.

According to the information obtained on the market, the banks welcome adoption of the Regulation and see the state guarantee support to lending as a tool which could be used to provide additional leverage to banks when lending to the businesses which creditworthiness may suffer as a result of pandemic. However, it remains to be seen which type of businesses will benefit from such support. Although the additional state guaranteed leverage may assist in assessing lending to certain businesses as less risky, such support should be seen for what it is – as a collateral that should be viewed as part of the package when assessing the overall creditworthiness of the borrower.

Tijana Arsenijević, Senior Associate