9 April 2020Following a wave of similar legislation recently adopted in the US and in EU countries, the Serbian government has introduced a state guarantee scheme to support market liquidity, which is expected to deteriorate due to the state of emergency introduced in response to the COVID-19 pandemic. However, unlike similar measures in other countries, Serbia’s legislative response is not explicitly focused on providing support only to SMEs.

On 6 April 2020, the Serbian government adopted the “Regulation on Additional Indebtedness during the Term of the State of Emergency Arising from COVID-19 caused by the SARS-COV-2 Virus by Obtaining Loans, Emission of State Securities on Domestic and International Financial Markets and Providing of Guarantees of the Republic of Serbia (the “Regulation”). The Regulation is in effect as of 7 April 2020.

The Regulation regulates the initiation of governmental proceedings to increase state debt by obtaining loans and the emission of state securities on domestic and international financial markets to finance the state budget deficit, maintain market liquidity, secure the necessary funds for the provision of financial support and enforcement of measures aimed at mitigating the effects of the COVID-19 pandemic, and to provide guarantees of the Republic of Serbia during the state of emergency in Serbia.

The Regulation provides that government may undertake the above-mentioned activities during the state of emergency. In addition, the Regulation envisages that the value of additional state indebtedness may exceed the amount determined by the Serbian Law on Budget for 2020, which is set at RSD 1,334.7 billion (i.e., approx. EUR 11.2 billion). The current state budget was prepared based on the assumption that the Serbian economy would grow by 4% in 2020.

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

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