R EPUBLIC OF S ERBIA

1. REPUBLICOF SERBIA MINISTRY OF FINANCE AND ECONOMY Country Presentation Serbia May 2013

2. Republic of Serbia Key facts • Form of Government: Parliamentary Republic • Territory: 88,361 sq. km • Capital: Belgrade • Population: 7.1 million1,2 • GDP per capita: EUR 4,1341,2 • Nominal GDP:RSD3,386.2bn1,2 • Credit ratings: S&P: BB-, Fitch: BB- • Currency: Serbian Dinar (RSD) • Current exchange rate: EUR/RSD = 110.543 USD/RSD = 84.393 1 National Statistics Office as of 2012 2 Excluding Kosovo and Metohija 3 NBS as of 30April 2013 2009 1

3. Ratings on par as before financial crisis, in contrast to many regional sovereigns Credit ratings comparison Source: IMF Regional Economic Outlook 2011, Fitch ratings, S&P, *Ministry of Finance and Economy 2

4. Recent economic developments • Real GDP increased 1.9% during Q1 2013, with significant growth of industrial production 5.2% • In the first three months of 2013 Y-o-Y exports of goods increased 22% in EUR terms, while imports stagnated in the same period, what resulted in decrease of external trade deficit for 25% • The fastest growing sector is automotive industry with share in total exports 20%. This strong growth was accompanied by the growth in export of electrical machinery and appliances, and the growth in oil and oil derivatives production, chemical, pharmaceutical, tobacco and textile industry • The economic growth is expected to be 2.0%-2.5% in real terms and to be driven by net exports and better agricultural production Real GDP growth Gross value added by activities in 2012 At current prices Source: National Statistics Office Source: National Statistics Office 3

5. Foreign reserves create a cushion for external imbalances • Comfortable level of FX reserves • EUR 11.84bnas of 31March 2013(over 8months of imports coverage) and net reserves amounted to EUR 7.7bn • Continued emphasis on FDI: • In 2013 expected level of net FDI to reach EUR 1bn, including the investment from the United Arab Emirates in agricultural sector External liquidity indicators (% of GDP) Sep-2012 2011 2006 2007 2008 2009 2010 Source: National Bank of Serbia Trade Balance (% of GDP) Balance of payments (% of GDP) Source: National Statistics Office, National Bank of Serbia *Preliminary data for 2012 Source: National Statistics Office, National Bank of Serbia *Preliminary data for 2012 4

6. Proactive fiscal measures of the Government • In September, the Parliament adopted changes to 17 laws as part of fiscal consolidation efforts • Budget deficit was 4.9% in 2011 and 6.4% in 2012 as of GDP • Fiscal consolidation is expected to reduce general government budget deficit to GDP ratio to ca. 4.5% in 2013, to 1.9% in 2014 and to 1.0% in 2015 • According to the latest Labour Force Survey, unemployment rate decreased slightly Central government budget (RSD bn) Consolidated fiscal balance (% of GDP) Source: Ministry of Finance and Economy Unemployment rate (%), Labor Force Survey 1% fiscal deficit target by 2015 Source: National Bank of Serbia Source: National Statistical Office 5

7. Proactive fiscal measures of the Government (cont’d) • Incentives distribution system • Standard-scale projects: • Requirements: • 1 million EUR investment – standard regions or • 0.5 million EUR investment – underdeveloped regions • 50 new jobs created • Benefit: 4,000 to 10,000 EUR per new job created • Large-scale projects: • Requirements: • 50 million EUR investments – all regions • 300 new jobs created • Benefit: grant up to 20% of investment value VAT • Very attractive tax system Corporate Profit Tax Salary Tax 6

8. Government policies • Export-oriented growth model remains the focus of Government policies: • In the first threemonths of 2013 Y-o-Y exports of goods increased 22% in EUR terms • The fastest growing export oriented sector is automotive industry with share in total exports 20% • Serbian export is starting to be based on products with relatively high value added • Attracting the FDI in industrial and agricultural sectors: • Adoption of the Agriculture support programme • Government subsidizes interest on loans granted by local commercial banks • The new Government implemented measures to improve the ease of doing business and simplify the administrative processes by cutting 138 parafiscal duties, regulating payment deadlines from public to private sector, new fiscal procedures and decreasing taxes for IT sector Exports 2005-2013 in EUR million Source: Ministry of Finance and Economy Index of automotive production Source: Ministry of Finance and Economy 7

9. Serbia free trade agreements EFTA Kazakhstan European Union Russia USA – preferential trade CEFTA Turkey Belorussia 0% - import duties; 0% - export duties 8

10. Development and modernization of transport, energy and infrastructure: • Modernizing and expanding road and railway network: • Serbia’s geographic location as a transport route connecting Western Europe and Turkey and the Middle East encourages the development of this sector including modernizing transport infrastructure, increasing transport capacities, and enhancing traffic safety • The construction and refurbishment of Pan European Route Corridor X and construction of highway linking Serbia and Montenegro Corridor XI • USD 800 million loan from the Russian Federation for modernising Serbia’s railways was signed in January 2013 • Continuous developments of the energy sector: • EPS, state-owned power company, is investing in increasing production capacity and improving the ecological standards. • South stream pipeline construction started under a joint venture company of state-owned gas operator Srbijagas and Russian Gazprom. The project includes 470km of pipeline network through Serbia with 40bn m3 capacity per year 9

11. Banking sector • Banking sector’s CAR was 20.4% at the end of 2012, which is significantly above the minimum defined by Basel II standard (8.0%) and moreover higher than most of Serbia’s regional peers and other EM countries • NPL ratio was standing at 19.9% in March 2013. NPLs are relatively high, but fully covered with regulatory provisions (117.3%). In December 2012, regulatory changes were adopted, which should significantly contribute to the NPL resolution and stimulate credit growth • Average monthly liquidity ratio in March 2013 was 2.44 which is more than twice the regulatory minimum (1.0) Capital adequacy ratios relative to peers Selected countries: Capital adequacy ratios at June 2012* Source: National Bank of Serbia, IMF *latest available comparable data Capital adequacy ratio (%) Provisions vs. NPLs Source: National Bank of Serbia Source: National Bank of Serbia 10

12. Monetary indicators • 2012 ended with a relatively high inflation rate of 12.2%, and it remained high in the first three months of 2013, with the level of 11.2% in March 2013 • We expect y-o-y inflation to have a sharp fall starting fromJune 2013 and return within the target tolerance band by the end of the year • Stabilizing the inflation rate, as measured by CPI, remains the key priority of the National Bank of Serbia • The key policy rate was cumulatively raised from 9.5% in mid-2012 to 11.75% in April 2013 Contributions of CPI Components to YoY Inflation (%) 2008 2010 2011 2013 2009 2012 Source: National Bank of Serbia YoY inflation (% at year end) Key policy rate and money supply Key policy rate M2 (YoY%) Source: National Bank of Serbia *CPI excluding regulated prices, prices of petroleum products, fruits and vegetables Source: National Bank of Serbia 11

13. Debt Management Strategy Public debt • Total debt stock as of 31 March 2013 equalled to €19.4bn, out of which €16.6bn were direct and €2.8bn contingent liabilities • Execution of the Debt Management Strategy: • In the period 2009–2013, there were no failed auctions of Government Securities • Increasing percentage of the RSD-denominated debt in overall public debt currency composition • Extension of the local yield curve: • Weighted average maturity of the domestic portfolio extended from 6 months in 2011 to 1.3 years as at 31 March 2013 • Succesfull debut issuance of 7year RSD bond in March 2013 and 5 year EUR denominated bond in April 2013 Source: Ministry of Finance and Economy Development of the currency structure(in percentage) Source: Ministry of Finance and Economy 12

14. Government securities issued on the international bonds’ market Source: Ministry of Finance and Economy Price/YTM Graph Serbia 10Y Bond Price/YTM Graph Serbia 7Y Bond Price/YTM Graph Serbia 5Y Bond Source: Ministry of Finance and Economy 13

15. Government securities issued on domestic market • The strongest decrease in the primary auction rates has been achieved in government bills 53 weeks and government bonds 3 years issuances in the period from September 2012 until April 2013 Primary Auction Accepted Rates for RSD Government Securities Source: Ministry of Finance and Economy 14