Public Debt Management Strategy 2014-2016

Public Debt Management Strategy 2014-2016 Pursuant t the Public Debt Law ( Official Gazette f the Republic f Serbia Ns. 61/05, 107/09 and 78/11), which cnstitutes the legal basis fr Serbia s brrwing, public debt includes 1 : Debt f the Republic arising frm agreements entered int by the Republic; Debt f the Republic arising frm securities; Debt f the Republic arising frm treaties and/r agreements n rescheduling f liabilities assumed by the Republic under earlier treaties and securities issued under special laws; Debt f the Republic arising frm guarantees issued by the Republic r frm direct accessin t debt in the capacity f a debtr fr debt arising frm guarantees and/r cunter guarantees issued by the Republic; Debt f lcal gvernments and legal entities funded by the Republic whse debt is guaranteed by the Republic. The Law allws brrwing in the cuntry and abrad, i.e. in dmestic and freign markets. The Republic may brrw in lcal and freign currency t cver budget deficit, liquidity deficit, t refinance public debt, t finance investment prjects and t cver liabilities arising frm guarantees issued. Pursuant t Article 9 f the Law n Depsit Insurance Agency, the Republic may als brrw t cver ptential lss with cmmercial banks (Official Gazette f the Republic f Serbia Ns. 61/05, 116/08 and 91/10). Under Article 13 f the Public Debt Law, public debt is an uncnditinal and irrevcable bligatin f the Republic cncerning the repayment f principal, interest and any and all brrwing csts. Public debt repayment has a permanent apprpriatin in the natinal budget and is priritized ver ther public expenditure prvided fr by the law gverning the natinal budget. The Budget System Law (Official Gazette f the Republic f Serbia Ns. 54/09, 73/10, 101/10, 101/11, 93/12 and 62/13-crrectin) lays dwn general fiscal rules, accrding t which general gvernment debt, exclusive f liabilities fr restitutin, may nt exceed 45% f grss dmestic prduct (GDP). This prvisin f the Law was welcmed by internatinal financial institutins, because it limited Serbia s public debt t a relatively lw share f GDP. It shuld be nted that, accrding t the Maastricht criteria, general gvernment debt includes lcal gvernment debt, but des nt include ttal guarantees issued by the gvernment. If this methdlgy were applied, the balance f Serbia s public debt wuld be even lwer than accrding t the currently applied methdlgy. Accrding t the same Law, if public debt exceeds 45% f GDP, the Gvernment is required t adpt and put in place measures t restre public debt t the level defined by the law. The Public Debt Law establishes the Public Debt Agency as an authrity within the Ministry f Finance and defines its pwers and rganizatin fr the purpse f recrding and managing Serbia s public debt. 1 Fr the purpses f this Strategy, the balance f central gvernment debt (a methdlgy defined by the Public Debt Law) includes als nn-guaranteed liabilities f lcal gvernment units.

1. Public Debt Balance and Structure in the Perid 2008 - August 2013 Accrding t the recrds kept by the Ministry f Finance f the Republic f Serbia, the Public Debt Administratin, mre specifically, Serbia s public debt includes all direct liabilities f the Republic arising frm brrwing, as well as guarantees issued by the Republic fr brrwing by public enterprises and lcal gvernments. Public debt f the Republic f Serbia is categrized as direct and indirect liabilities, i.e. liabilities fr and n behalf f the Republic and liabilities arising frm guarantees issued by the Republic in favr f ther legal entities. Direct and indirect liabilities are further categrized as internal debt and external debt, depending n whether they arse frm brrwing in the dmestic market r in internatinal markets 2. At year-end 2000, Serbia s ttal public debt as a share f GDP reached 169.3%. As a result f GDP increase, timely public debt servicing, lwer budget deficit, partial Lndn and Paris Club debt write-ff and ther factrs, the public debt-t-gdp rati was cut dwn t 28.4% in 2008. Due t adverse effects f the glbal ecnmic crisis n Serbian ecnmy, the Republic f Serbia increased brrwing t finance its budget deficit in the perid 2009-2013. Trends f Serbia s public debt as a share f GDP in the perid 2010 31 August 2013 are shwn in fllwing graph: Graph 18. Public debt as a share f GDP, in % 70% 60% 1.6% 1.4% 50% 40% 1.1% 6.3% 1.7% 6.9% 8.7% 8.8% 30% 20% 10% 0% 2010 2011 2012 2013/VIII Direct Liabilities Indirect Liabilities Nn-Guaranteed Lcal Gvernment Debt Increasing budget deficit, lw real GDP grwth and depreciatin f the dinar against freign currencies in which Serbian public debt is denminated have brught abut t an increase in the level f public debt in the past fur years, which thus exceeded the limit set by the Budget System Law. At year-end 2012, Serbia s ttal public debt std at RSD 2,063.7 3 billin up frm RSD 1,600.4 billin at year-end 2012. Public debt as a share f GDP at year-end 2012 was 60.9%. Internal public debt increased cnsiderably in 2012 cmpared t 2011, frm RSD 655.9 billin t RSD 853.2 billin. External public debt increased frm RSD 944.5 billin t RSD 1,210.5 2 Fr the purpses f this Strategy, the stck f central gvernment debt (a methdlgy defined by the Public Debt Law) includes als nn-guaranteed liabilities f lcal gvernment units. 3 Including nn-guaranteed lcal gvernment debt. This cmpnent f general gvernment s public debt increased frm RSD 53.4 bil in 2011 t RSD 54.2 bil in 2012.

billin in the curse f 2012. Direct liabilities f the Republic f Serbia in 2011 amunted t RSD 1,326.3 billin, rising t RSD 1,713.8 billin in the fllwing year. On the ther hand, indirect liabilities als increased frm RSD 220.7 billin in 2011 t RSD 295.7 billin in 2012. At the end f August 2013, ttal public debt stck std at RSD 2,245.6 billin r 59.7% f GDP. Out f that amunt, direct bligatins accunted fr RSD 1,861.0 billin, indirect liabilities accunted fr RSD 330.2 billin whereas nn-guaranteed lcal gvernment debt accunted fr RSD 54.4 billin. Internal direct liabilities amunted t RSD 747.9 billin, while external direct liabilities amunted t RSD 1,113.1 billin. As regards indirect liabilities, internal debt std at RSD 95.5 billin, while external debt reached RSD 234.7 billin. If brken dwn int internal and external public debt, ttal public debt amunted t RSD 883.3 billin and RSD 1,362.3 billin, respectively. Table 24 shws internal and external debt balance (abslute and relative) at year-end ver the perid 2010 August 2013. It als cntains figures shwing internal and external debt as a share f GDP. Table 25 shws the abslute balance f Serbia s direct and indirect liabilities and their respective balance as a share f GDP: Table 24. Internal and external public debt in the perid 2010 31 August 2013 2010 2011 2012 2013/VIII In RSD billin General Gvernment Debt 1,313.2 1,600.4 2,063.7 2,245.6 Dmestic Debt 525.2 655.9 853.2 883.3 External Debt 788.0 944.5 1.210.5 1.362.3 Out f which Central Gvernment 1,282.5 1,547.0 2,009.5 2,191.2 Dmestic Debt 518.2 624.9 816.0 843.4 External Debt 764.3 922.1 1,193.5 1,347.8 As % f GDP General Gvernment Debt 45.6 49.9 60.9 59.7 Dmestic Debt 18.3 20.5 25.2 23.5 External Debt 27.3 29.4 35.7 36.2 Out f which Central Gvernment: 44.5 48.2 59.3 58.3 Dmestic Debt 18.0 19.5 24.1 22.4 External Debt 26.5 28.7 35.2 35.9 Table 25. Internal and external public debt in the perid 2010 31 August 2013 2010 2011 2012 2013/VIII In RSD billin General Gvernment Debt 1,313.2 1,600.4 2,063.7 2,245.6 Direct Liabilities, ut f which: 1,101.8 1,326.3 1,713.8 1,861.0 Dmestic Debt 482.3 568.9 733.8 747.9 External Debt 619.5 757.4 980.0 1,113.1 Indirect Liabilities, ut f which: 180.7 220.7 295.7 330.2 Dmestic Debt 35.9 56.0 82.2 95.5 External Debt 144.8 164.7 213.5 234.7 Nn-Guaranteed Lcal Gvernment Debt, ut f which: 30.7 53.4 54.2 54.4 Dmestic Debt 7.0 31.0 37.2 39.9 External Debt 23.7 22.4 17.0 14.5 As % f GDP General Gvernment Debt 45.6 49.9 60.9 59.7 Direct Liabilities, ut f which: 38.2 41.3 50.6 49.5 Dmestic Debt 16.7 17.7 21.7 19.9 External Debt 21.5 23.6 28.9 29.6 Indirect Liabilities, ut f which: 6.3 6.9 8.7 8.8 Dmestic Debt 1.3 1.8 2.4 2.5 External Debt 5.0 5.1 6.3 6.3 Nn-Guaranteed Lcal Gvernment Debt, ut f which: 1.1 1.7 1.6 1.4 Dmestic Debt 0.3 1.0 1.1 1.0 External Debt 0.8 0.7 0.5 0.3

It shuld be nted that Serbia s public debt des nt include liabilities arising frm restitutin. Thse liabilities will becme due and payable in 2015. The Law n Restitutin and Cmpensatin (Official Gazette f the Republic f Serbia N. 72/11) prvides fr relevant time limits, cnditins, methds and prcedures which will apply t the Restitutin Agency in the restitutin f prperty natinalized after WWII. The Law states a preference fr restitutin in kind, but where this is nt pssible, restitutin will be made in treasury bnds and cash. The ttal amunt f cmpensatin must nt be such as t threaten Serbia s macrecnmic stability and ecnmic grwth. The ttal amunt earmarked fr this purpse is maximum EUR 2 billin, increased by the sum f accrued interest payable t all cmpensatin subjects at the rate f 2% per annum fr the perid frm 1 January 2015 t the maturity dates prvided fr by the Law. The maturity f these bnds will be fifteen years, with annual installments payable as frm 2015. In specific cases, cmpensatin in cash will be paid in advance, with the maximum amunt f such advance payments limited t EUR 10,000. Internal public debt Pursuant t the Public Debt Law, internal public debt includes direct and indirect liabilities f the Republic f Serbia t dmestic investrs and lenders. As at 31 August 2013, internal public debt included RSD 747.9 billin in direct liabilities and RSD 95.5 billin in indirect liabilities. Serbia s ttal internal public debt, inclusive f nn-guaranteed lcal gvernment debt (RSD 39.9bn), std at RSD 883.3 billin. Table 26 shws the structure f Serbia s internal public debt as at 31 December 2010 thrugh 2012 and as at 31 August 2013: Table 26. Internal public debt structure in the perid 2010 31 August 2013 2010 2011 2012 2013/VIII In RSD billin Ttal Dmestic Debt 525.2 655.9 853.2 883.3 Gvernment Securities, ut f which: 430.8 526.2 691.3 706.8 Gvernment Bills and Bnds 178.2 302.0 478.1 522.4 Frzen Frex Savings Bnds 251.8 223.4 212.3 183.5 Lan fr ecnmic revival 0.8 0.8 0.9 0.9 Other 87.4 98.7 124.7 136.6 Nn-Guaranteed Lcal Gvernment Debt 7.0 31.0 37.2 39.9 The Gvernment issued securities fr the first time in 2003, and their maturities were 3 and 6 mnths. As privatizatin prceeds were high and primary fiscal result was relatively balanced in the perid 2005-2008, the gvernment did nt issue any securities ver that perid and the amunt f gvernment securities was therefre relatively lw at year-end 2008. In the past fur years, the gvernment issued securities with different maturities, and a dinar yield curve was created fr maturities ranging frm three mnths t seven years. Table 27 shws the stck f gvernment securities at year-end in 2010, 2011 and 2012, and as f 31 August 2013:

Table 27. Debt balance by Gvernment securities (2010 31 August 2013) Instrument and Tenr % 2010 2011 2012 2013/VIII In RSD billin % In RSD billin % In RSD billin % In RSD billin Gvernment Bills 3M 12.1 21.5 1.3 4.0 1.4 6.9 1.3 7.0 Gvernment Bills 6M 30.9 55.1 9.0 27.1 4.5 21.8 2.3 11.8 Eur Indexed Gvernment Bills 6M 11.8 21.0 - - - Gvernment Bills 12M 34.0 60.6 3.3 10.0 - - Gvernment Bills 53W - 28.1 84.8 20.1 96.1 17.8 93.2 Eur denminated Gvernment Bills 53W - 6.9 20.9 4.9 23.3 3.7 19.4 Gvernment Bills 18M 8.4 15.0 21.2 64.1 15.4 73.5 9.4 49.4 Eur denminated Gvernment Bills 18M - 5.2 15.7 10.1 48.2 6.0 31.3 Gvernment Bills 24M 2.8 5.0 13.2 39.9 13.6 65.0 5.8 30.1 Amrtizing Gvernment Bnds 2Y - - 1.4 6.7 3.9 20.4 Gvernment Bnds 2Y - - - 8.1 42.1 Eur denminated Gvernment Bnds 2Y - - 2.7 12.7 7.3 38.1 Gvernment Bnds 3Y - 4.7 14.2 16.0 76.5 21.2 110.7 Inflatin Indexed Gvernment Bnds 3Y - - 2.3 10.9 1.7 9.0 Eur denminated Gvernment Bnds 3Y - 2.1 6.2 1.4 6.7 2.7 14.0 Gvernment Bnds 5Y - - 1.7 8.2 2.9 14.9 Eur denminated Gvernment Bnds 5Y - - - 1.5 8.0 Gvernment Bnds 7Y - - - 1.2 6.5 Inflatin Indexed Gvernment Bnds 10Y - - 1.1 5.2 - Eur denminated Gvernment Bnds 15Y - 5.0 15.1 3.4 16.4 3.2 16.5 Ttal 100 178.2 100 302.0 100 478.1 100 522.4 In early 2009, aiming t finance the budget deficit, the Gvernment issued 3-mnth bills, fllwed by issues f 6-mnth and 12-mnth bills. The ttal market value f issued Gvernment bills in that year was RSD 202.8 billin, while the balance f debt arising frm Gvernment bills at year end 2009 was RSD 100.7 billin. In the curse f 2010, debt frm gvernment securities increased, peaking at RSD 178.2 billin at year-end. In an effrt t bst the develpment f the Serbian capital market, the Public Debt Agency f the Serbian Ministry f Finance issued the first 18-mnth and 24-mnth Gvernment bills in March 2010. In February 2011, the Public Debt Agency f the Serbian Ministry f Finance issued a 15-year eur-denminated cupn bnd, as well as a 53-week eur-denminated T-bill, fllwed by the issue f the first 3-year dinar-denminated cupn bnd in March 2011. June 2011 saw the first issue f a 3-year eur-denminated cupn bnd in the Serbian market and in July 2011 an 18-mnth eur-denminated T-bill was issued. At year-end 2011, the debt based n dinar-denminated gvernment securities amunted t RSD 244.1 billin, while that based n eur-denminated gvernment securities issued in the dmestic market std at RSD 57.9 billin.

Effrts t intrduce new lng-term dinar-denminated instruments cntinued in 2012 in rder t extend the maturity structure f gvernment securities and increase the share f dinar denminated public debt. The first 5-year dinar-denminated bnd with a 10% cupn was issued n 24 January 2012 in an issue wrth RSD 2.7 billin, and was fllwed by the secnd issue n 29 May 2012 wrth RSD 520 millin. In an effrt t diversify the debt, n 1 August 2012, a 2-year amrtizing cupn-bnd tied t the key plicy rate f the Natinal Bank f Serbia was issued. As at 31 August 2013, the debt based n dinar-denminated gvernment securities amunted t RSD 395.0 billin while the debt based n eur-denminated gvernment securities issued in the dmestic market std at RSD 127.4 billin. Effrts t intrduce new lng-term dinardenminated instruments cntinued in 2013 in rder t extend the maturity structure f gvernment securities and increase the share f dinar-denminated public debt. In 2013, The Republic f Serbia issued first 7-year dinar-denminated bnd with average realizatin rate f 85%, and value pndered yield rate f 12.44%. Frm the beginning f the year until 31 August 2013, the Republic achieved 64.8% f the financing plan defined by the Law n Amendments and Changes f the Budget Law fr 2013, ut f which the revenues frm dinar-denminated gvernment securities amunt t RSD 193.0 billin, which represents 74.4% f the planned revenues frm dinardenminated securities at the lcal market. External public debt Pursuant t the Public Debt Law, external public debt includes direct and indirect liabilities t freign investrs and creditrs. The fllwing table shws the structure f Serbia s public debt at year-end 2010, 2011, and 2012 respectively and as at 31 August 2013. Table 28. External public debt structure in the perid 2010 31 August 2013 2010 2011 2012 2013/VIII in RSD billin Multilateral creditrs, ut f which: 536.2 543.2 588.9 558.0 Paris Club 170.6 165.5 167.8 163.4 IBRD 143.3 150.4 165.2 165.3 EIB 38.8 42.3 63.2 74.6 Lndn Club 79.6 75.4 74.2 36.7 IDA 53.1 55.4 59.3 57.3 IMF 47.4 48.1 51.4 50.9 EBRD - 1.3 2.6 3.1 CEB 3.4 4.8 5.2 6.7 Others - - - - Bilateral creditrs, ut f which: 63.2 85.1 106.9 134.6 Italy 3.5 4.8 4.8 4.6 EU 5.2 15.6 17.0 17.1 Exprt-imprt bank f China 8.9 13.6 25.2 26.3 Russia 15.9 16.2 15.5 40.6 France - 0.4 0.9 1.0 Azerbaijan - - 7.0 8.0 Libya - 4.1 4.1 4.5 Others 29.8 30.4 32.4 32.5 Other brrwing 20.1 129.1 284.2 420.5 Of which Eurbnds 2021-80.9 172.4 172.8 Of which Eurbnds 2017 - - 64.6 64.8 Of which Eurbnds 2020 - - - 129.6 Guaranteed external debt 144.8 164.7 213.5 234.7 Nn-Guaranteed Lcal Gvernment Debt 23.7 22.4 17.0 14.5 Ttal External Debt 788.0 944.5 1,210.5 1,362.3 At year-end 2012, debt t multilateral creditrs amunted t EUR 5.2 billin (RSD 588.9 billin), r 28.5% f ttal public debt, as ppsed t EUR 5.2 billin (RSD 543.2 billin), r 33.9% f

ttal public debt, in 2011. Paris Club debt at year-end 2012 amunted t EUR 1.5 billin (RSD 167.8 billin), r 8.1% f ttal public debt, cmpared with EUR 1.6 billin (RSD 165.5 billin), r 10.3% f ttal public debt, in 2011. Lndn Club debt at year-end 2012 amunted t EUR 652.1 millin (RSD 74.2 billin), r 3.6% f ttal public debt. During April 2013 the Ministry f Finance settled debt t the Lndn Club in the amunt f USD 400 millin in rder t reduce csts f debt f previusly arranged lan debts and/r issued bnds, in bth dmestic and internatinal financial market. As at 31 August 2013, Paris Club debt std at EUR 1.43 billin (RSD 163.4 billin). IBRD lans amunted t EUR 1.45 billin (RSD 165.3 billin), Lndn Club debt, after premature payment was EUR 320.6 millin (RSD 36.7 millin), bilateral lans amunted t EUR 1.2 billin (RSD 134.6 billin). IDA lans amunted t EUR 500.9 mil (RSD 57.3 billin), IMF lans amunted t EUR 444.6 mil (RSD 50.9 billin), and EIB lans amunted t EUR 651.5 mil (RSD 74.6 billin). In September 2011, the Republic f Serbia issued fr the first time a Eurbnd in the internatinal financial market with the nminal value f USD 1 billin. The terms f issue included a 7.25% cupn and a 7.5% rate f yield t maturity. In September 2012 the Ministry f Finance repened the issue f Eurbnd 2021, frm the year 2011 in the amunt f USD 1 billin and achieved the difference frm the required rate f yield t maturity frm primary issue f 87.5 base pints by cutting the rate f yield at the level f 6.625%, whereby the Eurbnd f the Republic f Serbia were sld at a premium. After a successful re-pening f Eurbnd 2012, n 14 Nvember 2012, the Republic f Serbia issued 5-year Eurbnd n the internatinal bnd market in the value f 750.0 millin US dllars. The transactin was annunced in the initial amunt f 500 millin US dllars with indicative yield f 5.625%. Hwever, great interest f the financial investrs, especially frm United States f America and United Kingdm (ver 160 investrs wrldwide) caused the increase f ttal demand up t 3.7 billin US dllars, which enabled the increase f the issue t 750 millin US dllars with 5.45% yield rate. On 14 February 2012, The Republic f Serbia achieved the mst successful Eurbnd issue. A ttal f 148 financial investrs frm all ver the wrld participated in the sale f Serbian Eurbnd. Demand was three times higher than the amunt n ffer, which indicates high cnfidence f the freign investrs in the ecnmic and public finances refrms carried ut by the Serbian gvernment. The majrity f investrs were frm the United States f America, the United Kingdm and the United Arab Emirates. A seven-year Eurbnd was wrth USD 1.5 billin and carried an interest rate f 4.875%. The achieved yield was 5.15%. This sale f Eurbnd was dne in accrdance with the planned activities f the Gvernment t prvide financial stability in 2013. One part f the prceedings was used t refinance lder and mst expensive debts. In September 2011, the gvernment sld fr the first time a seven-year Eurbnd at a higher yield f 7.5%, but cmpared t that ne this was much mre favrable in terms f price, since the yield was 2.35 percent lwer. Spread at the time f issue f seven-year Eurbnd cmpared with the US benchmark bnd was 378.4 base pints, which is 107 base pints lwer spread than the ne at the issue f Eurbnd 2017 f shrter maturity in Nvember 2012. In the middle f May 2013, Serbian Eurbnd reached the highest price with the lwest yield level frm the date f issue. Eurbnd 2021 yield was 4.414%, and fr Eurbnd 2020 it was 4.039% while fr Eurbnd 2017 it was nly 3.577%. Even thugh Standard and Pr s dwngraded the cuntry s credit rating frm BB t BBwith negative utlk in August 2012 and cnfirmed the same rating in March 2013, and Fitch assessed its utlk fr the frthcming perid as negative, in August 2012, Serbia has managed t issue a security with a yield higher than that achieved by sme cuntries in the regin with higher credit rating.

IN PERCENTAGE Graph 19. Serbia s 2021 Eurbnd price and yield trends frm the issue date t 31 August 2013 123 $ 9.50 120 $ Clsing price YTM 9.00 117 $ 8.50 114 $ 8.00 111 $ 7.50 108 $ 105 $ 102 $ 99 $ 96 $ 93 $ 90 $ 7.00 6.50 6.00 5.50 5.00 4.50 4.00 Graph 20. Serbia s 2017 Eurbnd price and yield trends frm the issue date t 31 August 2013

Graph 21. Serbia s 2020 Eurbnd price and yield trends frm the issue date t 31 August 2013 Currency structure f Serbia s public debt in the perid 2010 31 August 2013 At year-end 2010, mre than 60% f Serbia s public debt was denminated in eurs, fllwed by debt denminated in lcal currency 14.8% while the share f debt denminated in US dllars was 14.4%. Fr the purpse f financing the budget deficit, 2011 saw intensified issues f dinardenminated securities, which increased the share f dinar-denminated public debt t apprximately 16.3% at year-end 2011. At the end f 2012, dinar-denminated debt accunted fr nearly 19.3% f Serbia s public debt. In rder t reduce the currency risk by extending the maturity and develping new brrwing instruments, mainly n dmestic market, in the first eight mnths f 2013, a share f natinal currency in debt prtfli was maintained at 19 % at the end f August 2013. Table 29. Currency structure f public debt in the perid 2010 31 August 2013 2010 2011 2012 2013/VIII In RSD In RSD In RSD In RSD % % % bn bn bn bn % Special Drawing Rights 101.4 7.7 104.7 6.6 112.4 5.4 109.9 4.9 EUR 793.0 60.4 915.1 57.2 1,058.4 51.3 1,096.2 48.8 USD 188.7 14.4 284.9 17.8 457.4 22.2 580.1 25.8 CHF 22.8 1.7 21.4 1.3 24.3 1.2 21.6 1.0 RSD 194.3 14.8 261.1 16.3 398.5 19.3 426.5 19.0 Other 13.0 1.0 13.2 0.8 12.7 0.6 11.3 0.5 Ttal 1,313.2 100.0 1,600.4 100.0 2,063.7 100.0 2,245.6 100.0

In percentage Graph 22. Currency structure f public debt in the perid 2010 31 August 2013 100 90 80 2.7 2.1 1.8 1.5 7.7 6.6 5.4 4.9 14.8 16,3 19.3 19.0 70 60 14.4 17.8 22.2 25.8 50 40 30 20 10 60.4 57.3 51.3 48.8 0 2010 2011 2012 2013/VIII EUR USD RSD SDR Other Accrding t the figures as at 31 August 2013, the bulk f Serbia s public debt remains denminated in eurs (48.8%) f ttal public debt stck. This is fllwed by public debt denminated in US dllars, with 25.8% and dinars with 19.0%. The remaining debt is denminated in Special Drawing Rights (4.9%) and ther currencies (1.5%). Interest rate structure f Serbia s public debt in the perid 2010 31 August 2013 The structure f public debt, including nn-guaranteed lcal gvernment debt f Serbia, accrding t interest rates is favrable, because the majrity f debt is tied t fixed interest rates. The structure f interest rates n Serbia s public debt is shwed in Graphs 23 and 24: Graph 23. Interest rate structure f public debt in the perid 2010 31 August 2013 100% 90% 80% 70% 60% 50% 40% 30% 65.2% 68.4% 70.0% 71.7% 20% 10% 0% 2010 2011 2012 2013/VIII Fixed Interest Rate Variable Interest Rate

The majrity f Serbia s public debt (71.7%) is subject t fixed interest rates, while debt with variable interest rates accunted fr 28.3% f ttal public debt. As regards variable interest rates, EURIBOR and LIBOR n EUR accunt fr the highest share 74.6% cmbined f ttal public debt subject t variable interest rates. LIBOR n USD accunts fr 10.4%, while LIBOR n CHF accunts fr 1.7% f public debt subject t variable interest. Variable interest rates linked t LIBOR n GBP and JPY and ther variable rates accunt fr 13.3% f public debt subject t variable interest; f that number, interest rates n Special Drawing Rights accunt fr 2.3% f ttal public debt. Graph 24. Structure f variable interest rates in the perid 2010 31 August 2013 100% 90% 80% 70% 3.5% 2.4% 11.6% 12.9% 13.4% 13.3% 2.1% 1.9% 1.7% 11.5% 10.8% 10.4% 60% 50% 40% 30% 20% 10% 0% 2010 2011 2012 2013/VIII EURIBOR and LIBOR n EUR LIBOR n USD LIBOR n CHF Other 2013 Structure f gvernment securities and their duratin in the perid 2010-31 August The Republic f Serbia began issuing Gvernment bnds in 2003. Originally it issued nly shrt-term Gvernment bills frm 2003 t 2006; hwever, after a perid f stagnatin in the market fr dinar-denminated Gvernment bnds, the Gvernment began reissuing the bills in February 2009. Within fur years, the balance f this debt exceeded RSD 400 billin. In ther wrds, f the EUR 6 billin f abslute debt grwth cmpared with year-end 2008, nearly ne half was generated in the dmestic market thrugh issues f dinar- and eur-denminated gvernment securities. 2012 saw the intrductin f new dinar-denminated instruments such as inflatin-indexed bnds and 2-year amrtizing bnd with variable cupn. A 5-year Gvernment bnd was als issued fr the first time, in an effrt t extend the maturity f dinar-denminated securities. The develpment f financial market, instruments and the structure f the maturity f gvernment securities was cntinued in 2013. In additin t the high realizatin rate f the financing plan at the dmestic market, brrwing based n the issue f mainly dinar denminated, but als eur denminated securities significantly reduced the cst f brrwing. In the perid frm September 2012 August 2013, the Republic f Serbia reduced the csts f brrwing based n dinar denminated securities, which can be seen n the example f 53-week Gvernment bills, which achieved the reductin f yield rate f 5.45%, as well as in 3-year bnds which achieved the reductin f yield rate f 5.5%. Als, frm the beginning f the year cupn payment is perfrmed n an annual level. As fr instruments and maturity in 2013, the Republic f Serbia issued 2-year dinardenminated bnds t replace the previusly issued 18-mnth and 24-mnth gvernment bills in rder t extend maturity.

By issuing seven-year dinar-denminated bnds twice frm the beginning f 2013, n 5 March and 10 April, with average realizatin f 85%, and yield f 12.44%, the Republic f Serbia additinally extended the structure f maturity f dinar-denminated gvernment securities, and prvided the new instrument fr securing lng-term surce f financing. It is imprtant t emphasize that the demand fr dinar-denminated gvernment securities frm the beginning f the year was twice higher than the ffer f issued dinar-denminated securities f any maturity. Structure f dinar denminated Gvernment securities by riginal maturity is presented in Graph 25. Graph 25. Structure f Gvernment securities by riginal maturity at the end f the bserved perid 2010 31 August 2013 100 90 11.1 5.9 3.0 Inflatin Indexed Gvernment Bnds 10Y Gvernment Bnds 7Y 80 4.1 Gvernment Bnds 5Y 70 35.1 12.5 Inflatin Indexed Gvernment Bnds 3Y Gvernment Bnds 3Y 60 19.8 7.6 Gvernment Amrtizing Bnds 2Y 50 40 30 20 10 0 10.6 17.5 5.2 26.3 38.5 1.8 28.0 20.6 16.4 9.5 2,2 3.0 5.8 2.2 3.8 3.2 1.4 1.6 2010 2011 2012 2013/VIII Gvernment Bnds 2Y Gvernment Bills 24M Gvernment Bills 18M Gvernment Bills 53W Gvernment Bills 12M Gvernment Bills 6M Gvernment Bills 3M In 2012, ttal vlume f 53-week and 18-mnth Gvernment bills was EUR 585.0 mil. Ttal demand was EUR 692.3 mil with the average value pndered rate f 6.02%. Ttal nminal value f sld eur bills fr 2012 is EUR 478.8 mil. In the ttal prtfli f gvernment securities at the end f August 2013, dinar denminated gvernment securities amunt t 75.6%. The remaining 24.4% f the prtfli are eur denminated gvernment securities. Structure f the maturity f eur denminated gvernment securities, as well as the review f perfrmance rates f gvernment securities are given in Graphs 26, 27 and 28:

Primary market accepted rate Graph 26. Structure f eur denminated gvernment securities by riginal maturity at the end f August 2013 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 15.3 13.0 26.1 6.3 6.3 11.8 11.0 29.9 27.1 25,7 24.6 36.1 21.7 15.2 2010 2011 2012 2013/VIII Eur denminated Gvernment Bnds 15Y Eur denminated Gvernment Bnds 5Y Eur denminated Gvernment Bnds 3Y Eur denminated Gvernment Bnds 2Y Eur denminated Gvernment Bills 18M Eur denminated Gvernment Bills 53W Eur denminated Gvernment Bills 6M Graph 27. Overview f accepted rates f gvernment securities 17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% Gvernment Bills 3M Gvernment Bills 6M Gvernment Bills 53W Gvernment Bnds 2Y Gvernment Bnds 3Y Gvernment Bnds 5Y Gvernment Bnds 7Y

Primary market accepted rate 6.5% Graph 28. Overview f accepted rates f gvernment eur securities 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% Gvernment Bills 53W - EUR Gvernment Bills 18M - EUR Gvernment Bnds 2Y - EUR Gvernment Bnds 3Y - EUR Gvernment Bnds 5Y - EUR Cnsidering that securities issued until 2010 were mstly 3-mnth Gvernment bills, the duratin, r average days t maturity, was lw. With the intrductin f new instruments with lnger maturity and the lwer share f shrt-term instruments in the ttal balance f dinardenminated securities, duratin was extended cnsiderably. As at 31 August 2013, the duratin f dinar-denminated Gvernment bnds was 480 days, while the average duratin f ttal securities was 687 days. Trends in the duratin f dinar-denminated gvernment securities in recent years are shwn in Graph 29: Graph 29. Duratin f Gvernment securities issued in the dmestic market in the perid 2009 31 August 2013 800 700 687 600 597 500 480 400 390 300 200 117 117 154 154 100 0 2010 2011 2012 2013/VIII Duratin f RSD Securities Duratin f Gvernment Securities issued n Dmestic Market

Servicing f Serbia s public debt (central gvernment 4 ) in the perid 2013-2016 The figures presented in this sectin relate t past repayments f interest and principal and prjectins fr the frthcming perid. Table 30 shws the histry f public debt servicing frm 2010 t 2012, while Table 31 shws prjected public debt servicing fr the perid 2013-2016: Table 30. Interest and principal repayment in the perid 2010 2012 2010 2011 2012 In RSD billin Principal 245.1 290.5 308.5 Interest 30.1 40.4 63.1 Ttal 275.2 330.9 371.6 Table 31. Prjectins f interest and principal repayment by 2016 2013p 2014p 2015p 2016p In RSD billin Principal 433.3 463.5 495.1 445.1 Interest 91.7 112.4 106.5 127.1 Ttal 525.0 575.9 601.6 572.2 Public Debt as at 31 August 2013 23.4% 25.6% 26.8% 25.5% Table 32. Prjectins f interest and principal repayment by 2016 (as a % f GDP) 2013p 2014p 2015p 2016p In RSD billin GDP 3,761.3 4,007.8 4,292.1 4,583.7 Principal 11.5% 11.6% 11.5% 9.7% Interest 2.4% 2.8% 2.5% 2.8% Ttal 13.9% 14.4% 14.0% 12.5% 2. Prjectin f General Gvernment Debt Balance in the Perid 2013-2016 Taking int accunt Serbia s prjected primary budget deficit in the perid 2013-2016, including the withdrawal f lans fr prject financing f budget beneficiaries, the effects f exchange rate changes between the dinar n the ne side and the eur and the US dllar n the ther side in the basic macrecnmic scenari, the balance f Serbia s public debt shuld equal abut 68% f GDP, at the end f 2016, assuming that a prtin f state-wned assets will be sld in the frthcming perid. 4 Central gvernment level includes the Budget f the Republic f Serbia, cmpulsry scial insurance funds and the public enterprise Putevi Srbije

Table 33. Basic prjectin f general gvernment debt by 2016 2013p 2014p 2015p 2016p In RSD bn GDP 3,761.3 4,007.8 4,292.1 4,583.7 Primary deficit 96.5 70.3 17.9-59.0 Interest 91.7 112.4 106.5 127.1 Public debt 2,358.6 2,634.2 2,925.0 3,114.4 Central gvernment debt, % f GDP 62.7% 65.7% 68.1% 67.9% Nn-guaranteed lcal gvernment debt, % f GDP 1.5% 1.5% 1.7% 1.8% General gvernment debt, % f GDP 64.2% 67.2% 69.8% 69.7% Accrding t the prjectins, lcal gvernment debt will remain at a relative level f abut 3% as a share f GDP. Debt arising frm guaranteed liabilities, which are nt included in public debt balance accrding t the Maastricht criteria, is expected t be arund 3% f GDP. Public revenues and csts are f stchastic character and they reflect the changes f macrecnmic framewrk and plitics. Since public debt is a cnsequence f imbalance in public finance, debt crisis threat remains in frce until fiscal cnslidatin is implemented, as a prerequisite fr maintaining and imprving the cmpetitiveness f the ecnmy. Having that in mind, EU member states gradually implement the prcess f fiscal cnslidatin, which can lead t slwing dwn f the ecnmic grwth and can have negative effects n Serbian ecnmy, since EU is Serbian main trade partner, and that situatin wuld lead t wrsening f the public debt. Analyses underlying the Public Debt Management Strategy The Public Debt Agency based its Public Debt Management Strategy n the quantitative apprach, identifying ptential limitatins by applying macrecnmic indicatrs, cst and risk analysis and market cnditins that affect public debt management. The cst and risk analysis tk int accunt all viable financing alternatives. The share f each instrument in the verall financing needs fr a given year is determined n the basis f Strategy bjectives. The fllwing instruments available in dmestic and internatinal financial markets were used in the analysis. Surces f financing denminated in freign currency Lans by freign gvernments and internatinal financial institutins are presented as tw instruments denminated in eurs and US dllars, with fixed and variable interest rates;; Dmestic debt denminated in eurs is presented thrugh three instruments: lans by dmestic cmmercial banks with variable interest rates, Gvernment bills and bnds issued in the dmestic financial market; Eurbnd issued in eurs r US dllars at the internatinal financial market. Surces f financing denminated in lcal currency All gvernment securities denminated in dinars are categrized in a number f grups, including shrt-term Gvernment bills (with maturity up t 53 weeks), 2-year, 3-year and lng-term (5-year and 7-year) cupn Gvernment bnds. Future market interest rates and scenari analysis The mid-term public debt management strategy fr the perid 2014-2016 was develped using quantitative cst and risk analyses based n varius scenaris and prjectins. The starting pint was the basic scenari, develped using the mst prbable market cnditins. We then prceeded t identify three grups f market variables: freign exchange rate, reference interest rates in the internatinal market and reference interest rate n dinars. Future

market rates can be deducted frm an analysis f available purchase pwer parity r interest rate parity frecasts. The analysis assumes an average depreciatin f the dinar against the eur f 3.4%, as well as f the dinar against the US dllar in the same percentage, ver the bserved perid. Anther pssibility is t use the frward exchange rate between EUR and USD, but in this case external influences ( shcks ) are limited and the EUR:USD exchange rate is assumed t be fixed, in rder t gain a clear picture f the effects f the applied shck. Similarly, market frward rates are currently pr predictrs f future interest rates. The analysis als used cnstant rates. The effects f market rate changes were fully tested in shck cnditins. Interest rates n debt denminated in dinars cannt be real, cnstant r frward rates, because the prjected curbing f inflatin has nt yet resulted in the reductin f prjected interest rates. Amng ther issues, there is a lack f research f cnsumer prices and f structure rules that lead t very high interest rates. The apprach used fr interest rates in dinars is based n real rates that reflect the current situatin, taking int accunt als the expected inflatin rate reductin in the fllwing years. Once the basic scenari was defined, fur additinal types f scenaris (shcks) were chsen. Macrecnmic shcks r shcks in the primary budget are examined separately in the debt sustainability analysis. Depreciatin f the dinar against the dllar by 25%. In this type f shck, all ther exchange rates remain unchanged. This glbal scenari is nt particularly related t the Serbian ecnmy, but it can have a significant impact n Serbia s debt because f the prtin f the debt denminated in dllars (which shuld accunt fr mre than 20% f Serbian central gvernment public debt by the end f August 2013). This glbal scenari is nt much related t Serbian ecnmy, but it has a great impact n Serbian debt, due t a share f debt denminated in US dllars (which at the end f August 2013 accunted fr 26.5% f Serbian public debt f the central gvernment.) In this scenari, the EUR/USD exchange rate wuld change frm 1.30 t 1.04. This scenari is likely t ccur nce the US ecnmy recvers and sees a higher grwth rate, as the Eurpean ecnmy cntinues t suffer frm effects f the current debt crisis. Depreciatin f the dinar against all currencies by 25%. In this scenari, exchange rates in the whle wrld wuld remain stable, while nly the dinar wuld depreciate against them. Macrecnmic circumstances in this scenari wuld include a high balance f payments deficit and lw inflw f freign direct and prtfli investment. Interest rate increase in the internatinal market. At present, interest rates wrldwide are at a histric lw. Central banks keep lw rates anchred, thus enabling gvernments t address the issue f debt and banks t prfit frm psitive yield curves and recapitalizatin, as lng as inflatin is kept at bay. If glbal ecnmy recvers, interest rates will prbably increase by abut 2-3 percentage pints. Interest rate increase in the dmestic market by 5%. This scenari wuld be pssible if inflatin remained high (abve 10%) and the RSD: EUR exchange rate were highly vlatile. Each f the abve stress tests r risk scenaris was used t examine the cst effects f the strategies cnsidered. Alternative Brrwing Strategies fr the Perid 2014-2016 In cperatin with Wrld Bank experts, the Public Debt Agency f the Serbian Ministry f Finance applied the WB Medium Term Debt Strategy Mdel (MTDS) as a cst and risk analysis fr the purpse f prtfli ptimizatin and mre efficient public debt management. The ptimum chice f csts and risks defined the basic brrwing strategy fr the fllwing mid-term perid. The fllwing alternative brrwing strategies were analyzed: Basic strategy (S1): a strategy that largely cvers the financing need with existing financial debt instruments, accrding t the principles used in the perid 2011-2013. The majrity f new brrwing is based n issuing gvernment securities in lcal and freign currencies in the dmestic market and issuing Eurbnds denminated in US dllars with 5-year and 10-year maturity.

Strategy with prvided cncessin lan (S2): unlike S1 Strategy, ne 5-year Eurbnd denminated in eurs is issued (43% f nminal planned Eurbnd issue in S1), favrable lng-term lan is prvided with 25-year return perid and fixed interest rate f 1% in US dllars, while the additinal financing at lcal market is based predminantly n dinar-denminated securities in the scpe similar t S1. Strategy f financing thrugh a Eurbnd issue (S3): this strategy envisages rll-ver f dinar and eur- denminated securities with the maturity at lcal market withut additinal issue f these securities, while the additinal financing is prvided by the issue f 5-year Eurbnds denminated in US dllars and eurs, and 10-year Eurbnds denminated in US dllars. Supplementary dinarizatin strategy (S4): is a strategy relying n increased issuing f dinardenminated gvernment securities. All strategies envisage financing f natinal budget expenditures primarily thrugh gvernment securities issues in internatinal and dmestic capital markets, except fr strategy S2, which relies n mre significant participatin f cncessin lans. The debt cvered by this analysis is central gvernment debt, including debt arising frm indirect liabilities serviced by the Republic, but excluding nn-guaranteed lcal gvernment debt, withut new drawings f prject and prgram lans, and withut new debts and guarantees pursuant t Articles 36 and 37 f the Budget Law f the Republic f Serbia fr 2013 - The balance f public debt thus calculated is estimated t be 58.1% f GDP at 2013 end. Cst and risk analysis f alternative brrwing strategies Quantitative analysis presents the perfrmance f each f the fur alternative brrwing strategies. The vertical axis shws debt as a share f GDP in the basis macrecnmic framewrk defined by the Fiscal Strategy and it is the basic measure f each individual brrwing strategy, while the hrizntal axis shws the ptential cst f each individual brrwing strategy (stress test result). Tw different cst ratis were used: public debt-t-gdp and nminal interest-t-gdp. The first rati is a balance indicatr, while the secnd is a flw indicatr. Fr the sake f cmparisn, the analyses fcus n the results f examined strategies at year-end 2016. Cmparisn f alternative strategies: Graph 30. Debt-t-GDP rati at year-end 2016

Graph 31. Interest-t-GDP rati at year-end 2016 The graph clearly shws csts assciated with each f the examined strategy bth the S1 and the S4 Strategy have a relatively higher risk expsure regarding the interest rates and freign exchange rates. As a result f cmbining dinar, eur and dllar securities, the S1 Strategy has, in the current prprtins, a large expsure t pssible scillatins f RSD interest rates n gvernment securities, while the level f expsure f the S4 Strategy increases significantly as the verall additinal financing is prvided thrugh emissins f dinar-denminated securities. On the ther hand, bth the S1 and the S4 Strategy have a mre stable rati f share in GDP, due t the relatively higher share f dinar. In the S2 Strategy, based n the swap f dllar securities fr the five-year eur-denminated securities, and a lng-term lan with a repayment perid f 25 years and a fixed interest rate f 1% in US dllars, there is the lwest risk in terms f interest rates f all the fur bserved strategies, due t the lwer vlatility f the eur exchange rate in relatin t dinar, as well as t the lw and fixed cst f cncessinal lan. The S3 Strategy appears t be relatively the mst risky ne in terms f debt-t-gdp rati, fr the additinal funding is based n the issue f dllar and eur-denminated bnds, while the S4 Strategy seems t be relatively the mst expensive f all strategies, cnsidering the high share f dinar-denminated securities in this strategy. In the analysis f the public debt-t-gdp rati, it is estimated that the S3 Strategy represents the riskiest chice, while the analysis f the interest-t-gdp rati shws that the S4 Strategy is the mst expensive strategy. The basic S1strategy has relatively high interest csts due t the high share f dinar-denminated securities. The S2 Strategy has lw interest csts because much f the needs fr financing are prvided frm a cncessinal lan. Accrding t these analyses, it is evident that, in the cming perid, the basic brrwing peratins will be based n the strategies S1 and S2, but with a clear preference t base the brrwing peratins n the S2 Strategy, if there exists an pprtunity fr brrwing n cncessinal terms t a greater extent. The results, btained by using the Wrld Bank mdel fr the public debt-t-gdp rati at the end f 2016, d nt cver the pssible prceeds frm the sale f state assets, r guaranteed bligatins, which are nt serviced by the Republic f Serbia, and bligatins in respect f restitutin.

Table 34. Public Debt-t-GDP rati at year-end 2016 Scenaris S1 S2 S3 S4 Basic scenari 62.1 61.4 61.9 62.3 Exchange rate shck (25% all currencies) 74.2 73.5 74.7 73.3 Interest shck (scenari1) 62.9 62.1 62.7 63.2 Interest shck (scenari2) 63.3 62.4 63.0 63.6 Cmbined shck (25% USD and interest shck 1) 68.4 67.5 68.5 67.8 Maximum risk 12.1 12.1 12.8 11.0 Table 35. Rati f payments based n the interest and GDP at year-end 2016 Scenaris S1 S2 S3 S4 Basic scenari 3.5 3.0 3.2 3.9 Exchange rate shck (25% all currencies) 4.1 3.5 3.8 4.4 Interest shck (scenari1) 4.3 3.7 3.9 4.8 Interest shck (scenari2) 4.7 4.0 4.3 5.1 Cmbined shck (25% USD and interest shck 1) 4.6 4.0 4.3 5.1 Maximum risk 1.2 1.0 1.1 1.3 The fllwing table shws the trends in basic parameters f public debt in each f the fur examined strategies, reflecting the characteristics f each strategy explained abve: Table 36. Risk indicatrs fr alternative strategies Risk indicatrs Year-end 2016 S1 S2 S3 S4 Nminal debt (% f GDP) 62.1 61.4 61.9 62.3 Net present value (% f GDP) 59.9 55.1 59.8 60.1 Applied interest rate (%) 6.0 5.2 5.5 6.6 ATM 51 external prtfli (in years) 6.9 8.9 6.8 7.0 Refinancing risk ATM dmestic prtfli (in years) 2.8 2.8 2.4 3.2 ATM ttal prtfli (in years) 5.8 7.4 6.2 5.1 АТR 16 (in years) 4.2 6.2 4.7 3.4 Interest rate risk Refixing (% f ttal debt) 38.6 33.6 33.4 43.5 Debt at fixed rates (% f ttal debt) 75.6 78.7 77.0 73.2 Freign exchange risk Freign-currency debt (% f ttal debt) 79.8 82.5 91.1 62.1 51 АТМ - Average Time t Maturity 16 АТR - Average Time t Refixing

The Share f Public Debt in the Grss Dmestic Prduct in the perid 2014-2016 Accrding t the fiscal rule laid dwn by the Budget System Law, the general gvernment public debt may nt exceed 45% f GDP. If the debt exceeds that level, the Gvernment shall be bliged t adpt a prgram t reduce public debt in relatin t GDP, i.e. t restre the debt t the level permitted by the law. At year-end 2012, the central gvernment debt reached 59.3% f GDP while the general gvernment debt reached 60.9% f GDP. The public debt-t-gdp rati f central gvernment amunted t 58.3% f GDP at the end f August 2013. This upward trend is expected t cntinue until the end f the year, reaching the share f abut 62.7% f GDP at the central gvernment level, that is 64.2% f GDP at the general gvernment level. As a result f the high share f debt denminated in freign currencies (ver 80%), the freign exchange risk will bviusly determine the trends f the public debt-t-gdp rati in the future and significantly influence the success f fiscal plicies measures aimed at cnslidating public finances and reducing the share f public debt in GDP. On the basis f the planned macrecnmic framewrk, prvided that ptential risks (primarily freign exchange risk) d nt materialize, the public debt (excluding liabilities arising frm restitutin and nn-guaranteed lcal gvernment debt) shuld be 67.9% f GDP by 2016. The key factrs, affecting the stabilizatin f the public debt-t-gdp rati, include: GDP grwth, primary deficit, dinar exchange rate against freign currencies and interest levels. The prpsed fiscal plicy measures prvide fr a reductin f the primary deficit, reducing thus the basic factr f debt grwth. Interest levels are expected t decrease in the perid 2014-2016, if brrwings n favrable terms thrugh new cncessinal lan and prceeds frm the sale f state assets are realized, while the nminal GDP is expected t increase t 7%. All these factrs shuld affect the public debt, at a central level, t cme at an average level f 67% f GDP in the perid 2014-2016. The sale f the state-wned prperty (enterprises) in tendering prcedures, in industries where such enterprises are expsed t cmpetitin and d nt belng t a grup f the s-called state mnplies, as well as the sale f minrity interest packages, held by the gvernment in certain enterprises, r state licenses can significantly decrease the debt-t-gdp rati in the perid 2014-2016. One f the surces f prceeds that will cntribute t the public debt-t-gdp rati reductin is als the sale f inactive state-wned resurces. If prceeds are incurred n the abve mentined grunds, in the amunt f 1.6 billin EUR, the public debt will be reduced by arund 4.5% f GDP. All prceeds arising frm the sale f state-wned assets will cntribute t the public debt reductin due t the pssibility f using resurces fr the repayment f the mst expensive part f the public debt and budgetary needs financing withut any new brrwings in the financial market. This will directly reduce the interest burden in the upcming budget years and increase the primary budget deficit. Table 37. Cntributins f the key macrecnmic variables t changes in the central gvernment debt-t-gdp rati 2011 2012 2013p 2014p 2015p 2016p in percentages Central gvernment debt/ GDP 48.2 59.3 62.7 65.7 68.1 67.9 Change cmpared t the previus year 3.7 11.1 3.4 3.0 2.4-0.2 Impact f the primary deficit 2.9 3.8 2.6 1.8 0.4-1.3 Interest 1.3 1.9 2.4 2.8 2.5 2.8 Grwth f nminal GDP -4.5-2.5-5.9-3.9-4.4-4.3 Other factrs affecting the rati 4.0 7.9 4.3 2.3 3.9 2.6

Graph 32. Impact f changes in the RSD exchange rate against the basket f currencies frm the public debt prtfli n the change in public debt-t-gdp rati The Graph 32. shws the mvement f the public debt-t-gdp rati, depending n changes in the RSD exchange rate against the particular currency basket. It presents the basic prjectin with alternative scenaris, depending n the appreciatin r depreciatin f the RSD exchange rate in the range f 10% f appreciatin t 20% f depreciatin f the dinar against the basket f currencies. Applicatin f the afrementined scenaris shws that the rati wuld range frm 62.5% t 78.8% in 2016, while the basic scenari wuld be at the level f 67.9%. The key risks t the Strategy implementatin, that are quantified, in additin t the abve specified nes, are als: stability f the macrecnmic situatin in Serbia (real GDP grwth, tax cllectin, unemplyment rate, current accunt f payment balance, interest rates n the dmestic market, inflatin, exchange rate f the dinar against the eur, etc.); develpment f the wrld ecnmy and Serbia`s principal freign trade partners; needs fr additinal brrwing in rder t regulate the debts at ther levels f gvernment, in public sectr and financial system f Serbia; tax and nn-tax revenues lwer than planned and expenditures larger than planned during the budget year; significant decline in the value f the dinar against the eur; higher degree f brrwing by lcal authrities than planned in the medium-term macrecnmic (fiscal) framewrk; activatin f prvided guarantees. It is imprtant t nte that the adequate cntrl ver the issuance f guarantees and the imprved prcess f priritizatin f investment prjects, eligible fr funding frm the credit lines apprved by multilateral and bilateral creditrs, will als cntribute t the public debt-t-gdp reductin. In rder t supprt effrts made by the Ministry f Finance t increase the efficiency f prject investing, which is funded frm prject lans f multilateral and bilateral institutins, the Gvernment f the Republic f Serbia adpted, in June 2013, the Cnclusin, accepting the Reprt n the implementatin f prject lans apprved by the internatinal financial institutins and ther freign creditrs, which bliges the Minister f Finance t restrict the apprval f new prject lans and issuance f guarantees f the Republic f Serbia t thse beneficiaries whse rate f withdrawal f funds f the apprved prject lans is less than 70%, n the basis f assessing the effects f the use

f the apprved prject lans, by sectrs and beneficiaries, and in accrdance with the percentage f the withdrawn funds and indicatrs f success. Fr the purpse f adequate statistical reprting n the public debt, the basic definitins f debt in the Budget System Law and the Public Debt Law shall be redefined and harmnized. Principles f Public Debt Management Pursuant t the Public Debt Law, the primary bjective f Serbia`s brrwing and public debt management is t ensure funds needed t finance budget expenditures, with minimum mid- and lng-term financing csts and with acceptable risk levels. Minimizatin f lng-term csts f servicing the public debt is limited by the structure f debt, and the actual cst reductin will depend n a number f factrs and risks. Taking this int accunt, the Public Debt Management Strategy f the Republic f Serbia identifies the fllwing verall bjectives and principles: 1) It is necessary t ensure financing f Serbia`s fiscal deficit, including bth the shrt-term (liquidity) and lng-term deficit, as a part f the plicy aimed at maintaining the public finance system stability; 2) It is necessary t define the acceptable level f risk, which shuld be determined as a targeted debt prtfli structure in terms f currency structure f debt, interest rate structure, maturity structure and debt structure by types f financial instruments; 3) Supprt shuld be prvided fr the develpment f a market fr gvernment securities issued in dmestic and freign markets in rder t utilize the develped markets as a means f cutting brrwing csts in the mid and lng term, in line with the high-quality diversificatin f the debt prtfli; 4) The brrwing prcess shuld be transparent and predictable. The Public Debt Management Strategy shuld be supprted by and cnsistent with the Gvernment`s general mid-term macrecnmic framewrk. The Republic f Serbia needs t take int accunt a number f limiting factrs when cnsidering its financing strategy. As a middle-incme cuntry, surces f finance available t it in dmestic and internatinal financial market are limited, especially at a time when develped EU Member States are facing difficulties in their effrts t secure financing fr their fiscal deficits and refinancing fr their mature debt. There are als strict cnditins under which the cuntry may brrw frm bilateral and multilateral lan facilities. Taking int accunt the abve mentined limitatins and ptential risks, it was nevertheless decided that the public debt management strategy in the fllwing mid-term perid shuld fcus n financing natinal budget expenditures mainly thrugh the issues f gvernment securities in internatinal and dmestic capital markets. The existing debt structure is rather hetergeneus, taking int accunt the inherited debt f the frmer Yugslavia, the limited availability f market instruments in the past perid and the specific status in terms f prject financing by internatinal financial institutins. The market fr gvernment securities is still develping and ne f the principles f the public debt management is the requirement fr flexibility, in rder t ensure financing fr natinal budget expenditures. Flexibility will be reflected in the chice f markets fr prvisin f brrwing, the currency f brrwing and financial instruments. When chsing a financing structure, ne will take int accunt the current situatin and develpment trends in dmestic and freign financial markets (interest rate levels, risk premiums, yield curve, exchange rates f reference currencies) and acceptable levels f expsure t financial risks. The aim is t finance the debt in the fllwing lng-term perid thrugh the issues f mainly dinar-denminated securities in the dmestic market. Hwever, the current situatin indicates that despite a strng cmmitment t develp the dmestic market fr gvernment securities, a large share f financing will have t be ensured in the fllwing mid-term perid in the internatinal financial market. Main guidelines fr funding in freign currencies in the internatinal market will be t ensure the access t a large number f investrs in different segments f the internatinal financial market, t define brrwing in freign currency in accrdance with the repayment f debt denminated in freign currency (including interest n these debts) where pssible and t allw

brrwing in the internatinal market when financial cnditins are mre favrable than in the dmestic market, in rder t stabilize public finances as fiscal risks materialize. Brrwing in freign currency als implies freign exchange risk due t changes in the RSD:EUR and EUR:USD exchange rates, which means that public debt management faces the difficult task f actively cnsidering and using hedging if brrwing is nt made in dinars r eurs. Public debt management plicy must take int accunt the lng-term perspective, but the decisin n financing the budget expenditure must be made n an annually basis. Decisins n annual brrwing are made within the framewrk f the Budget Law fr the fiscal year cncerned, and are the subject t change during the fiscal year cvered by the brrwing plan if basic fiscal aggregates change. Financial Risks and Public Debt Financial and fiscal risks can lead t public debt increase larger than envisaged by the basic scenari. The risks that are present and that can lead t the grwth f debt and csts f public debt servicing are: 1. refinancing risk; 2. freign exchange risk; 3. market risk (interest rate risk, inflatin risk); 4. liquidity risk; 5. credit risk; 6. peratinal risks; 7. risks linked with the distributin f servicing csts (debt structure, cncentratin f bligatins). In rder t reduce the expsure t financial risks, it is necessary t implement the fllwing measures: 1. refinancing risk increase in share f mid-term and lng-term financial instruments denminated in dinars in the dmestic financial market; equal distributin f bligatins based n public debt, n an annual basis and during the fiscal year in the next lng-term perid; extending f average maturity f the debt issued in securities; 2. freign exchange risk attempt aimed at reducing the share f the debt denminated in freign currency by bserving, at the same time, the csts f the new debt (debt dinarizatin csts); use f financial derivatives in rder t limit the effect f changes in the exchange rates f reference currencies; attempt t keep the external debt mainly in EUR and t use the dllar denminated debt nly if the financing in dllars is cheaper in the internatinal market, using financial derivatives fr the risk limitatin; 3. market risk (interest rates risk, inflatin risk) attempt t extend the duratin f dmestic debt in dinars; issuance f indexed bnds (interest rate indexatin); risk based n interest rate n external debt des nt affect the lng-term gal t minimize the public debt csts; 4. liquidity risk

permanent maintenance f the cash in the Republic f Serbia accunts at the level which enables a smth financing f bligatins ver a minimum f fur mnths, and at a level which enables amrtizatin f pssible smaller inflws based n the brrwing in relatin t the plan; adequate management f freely available cash assets in the Republic f Serbia accunts in accrdance with the asset-liability management principles; redefinitin f the agreements with the Natinal Bank f Serbia fr placement f dinar and FX assets, and pssible amendments t the Law n Freign Exchange Operatins. Prviding an pprtunity fr the Gvernment t use liquidity surpluses fr buying back the relatively mre expensive debt; autmatic executin f rders in the system f the Republic Treasury in rder t avid arrears (shrt-term bligatins - debts) in the system, and respect fr the Rules n Budget Executin System; cnslidatin f FX assets, apart frm thse in dinars, within the cnslidated Treasury system maintained with the Natinal Bank f Serbia, and utilizatin f FX assets fr active management f the liquidity n the dinar accunt f the budget executin; 5. credit and peratinal risks transactins with financial derivatives may be carried ut nly with the financial institutins having a high credit rating; use f financial instruments which limit the credit risk; prviding guarantees and apprval f a new debt t lcal authrities nly if there exists an adequate analysis f the relatively lw level f prbability fr the guarantees' realizatin in the medium term, which needs t be regulated by legal prvisins; intrductin f adequate cntrl in all business activities in the Public Debt Agency and imprving the knwledge f the emplyed staff, which requires raising the limit f the number f emplyees and apprving adequate budget resurces; upgrading and imprvement f the existing infrmatin system fr mnitring the public debt and peratins with the same; 6. risks linked with the distributin f servicing csts adequate planning f the brrwing n an annual level and unifrm distributin in the upcming years and in the curse f the fiscal year s as t avid the risk f large cncentratin f refinancing bligatins; aviding the cncentratin f bligatins, based n the public debt at mnthly level, which culd nt be amrtized by freely available cash assets in the Republic f Serbia accunts. Risk Quantificatin Based n the Cst-at-Risk (CAR) Mdel Public Debt Agency applies risk quantificatin based n the Cst-at-Risk (CAR) mdel, develped in cllabratin with the team f experts f the EU prject "Supprt t the Ministry f Finance, t the Treasury Administratin and Public Debt Agency in capacity building," IPA 2010. Methdlgical tl Cst-at-Risk is based n the cncept f Value-at-risk and is used t assess the degree f expsure t market risks. The utility value f this tl lies in prviding the pssibility t financial institutins t determine the level f financial resurces (reserves) that will enable them t successfully absrb shcks caused by extremely unfavrable trends f these risk factrs. Cst-at-Risk value is the maximum lss that is the increase f the expected cst in the selected time perid with a specific prbability - usually in the range frm 90% t 99%. This mdel includes tw mst imprtant risk factrs that affect the amunt f funds required fr the public debt servicing in the frthcming perid - interest rate risk and currency risk. The mdel evaluates verall and individual cntributin f bth types f risk t the verall risk denminated in dinars.

Using the Mnte Carl simulatin, with a selected number f simulated trajectries (prjectins), ne determines the jint distributin f these tw risk factrs and the percentile f that distributin, crrespnding t the selected level f cnfidence. In ther wrds, based n a great number f different scenaris f mvements f exchange rates and interest rates, the mdel will determine the level f change, that is the increase f resurces needed fr the public debt servicing in relatin t the prjected amunts, and it will nt be surpassed by the percentage f prbability that is t match the chsen level f cnfidence. Graph 33. Cst-at-Risk (CaR) Simulatins are based n the structure f the prtfli f public debt securities in the bserved perids, r n a cmbinatin f the securities prtfli structure at the present time, its changes ver time, resulting frm the related repayments f principal and interest (cupns), and the characteristics f new brrwings which cmply with the basic principles and bjectives set ut in this strategy. Table 38. Results f the CaR mdel Perid 3 CaR values 1,2 2014 2015 2016 Abslute Car (99. percentile) 26,289,569 84,775,052 190,750,573 f that currency RSD:EUR 13,354,723 34,750,406 53,724,206 RSD:USD 12,934,846 50,024,646 137,026,367 interest 0 0 0 Abslute Car (95. percentile) 20,221,880 57,982,270 120,255,406 f that currency RSD:EUR 10,177,523 23,591,060 38,610,108 RSD:USD 10,044,357 34,391,210 81,645,298 interest 0 0 0 Abslute Car (90. percentile) 16,178,489 46,618,644 93,248,809 f that currency RSD:EUR 8,617,274 20,141,582 30,870,174 RSD:USD 7,561,215 26,477,062 62,378,635 interest 0 0 0 Average CaR (50. percentile) 3,194,508 10,480,853 22,744,522 f that currency RSD:EUR 1,795,587 4,721,815 7,418,519 RSD:USD 1,398,921 5,759,038 15,326,003 interest 0 0 0 1number f simulatins: 10,000, n a daily basis 2 in RSD thusand 3 'perid ' refers t a perid frm 31 August 2013 t December 31 f each year presented

The mdel indicates that, in the perid frm 31 August 2013 until the end f 2014, in the mst rigrus cnditins with the cnfidence level f 99%, the amunt required t service the public debt belnging t securities prtfli will nt increase ver the 26.3 billin RSD in relatin t the amunt required t service this part f the prtfli under cnditins f unchanging exchange rates and interest rates. Securities in the public debt prtfli are dinar-denminated securities (gvernment bills and bnds) and securities with a fixed cupn (Eurbnds and bnds denminated in eurs issued in the dmestic market), s that the interest rate risk in all results f the mdel is equal t zer. Currency risk is shwn in relatin t the exchange rate f the dinar against the tw currencies represented in the prtfli - eurs and dllars. RSD:EUR exchange rate cntributes with 13.4 billin dinars t the ttal CaR value, while the risk f the unfavrable RSD:USD exchange rate fluctuatins is assessed t be at the level f 12.9 billin dinars. As the mdel indicates, it can be cunted with the prbability f 95% r 90% that the servicing csts will increase, amunting t less than 20.2, i.e. 16.2 billin dinars by the end f 2014. Similar t a cnfidence level f 99%, the cntributin f bth exchange rates is apprximately equal, amunting t 10.2 and 10.0 billin dinars fr the cnfidence level f 95%, i.e. 8.6 and 7.6 billin dinars fr the cnfidence level f 90%. Finally, the CaR value f 3.2 billin dinars fr 2014, at the bttm f the Table, shws, with the prbability f 50%, the amunt f increasing csts fr the public debt servicing in relatin t the amunt determined by the current values f the risk factrs (in this case it is the exchange rate f the dinar against the eur and the dllar). Partly because f immanent uncertainty, partly because f the tendency f changing the public debt structure in favr f securities (mainly Eurbnds denminated in USD), risk factrs play an increasingly imprtant rle in the lng term. Taking int accunt that the bulk f the debt is in freign currency (in 2013, abut 80% f the public debt was in freign currency), the expsure t FX risk is high and this risk materialized in 2012, when the dinar, in just a few mnths, depreciated by mre than 10%, and as a result the public debt-t-gdp rati increased by mre than five percentage pints just because f the rise f the exchange rate f the eur and US dllar against the dinar. Any change in the exchange rate f the dinar against the eur and US dllar f 1%, in the directin f the dinar depreciatin relative t the basic scenari, will lead t the abslute debt increase frm 19 t 25 billin dinars in the upcming perid (frm 2014 t 2016), that is in relative terms abut 0.50% f GDP (assuming that n ther freign currencies fluctuate significantly against the eur). It is very imprtant fr the public debt that EUR: USD rati des nt depart significantly frm the basic scenari. In the event f departure, if the USD value increases against the eur by 1%, the public debt stck will g up by 7 t 8 billin dinars in the next perid (2014-2016), that is by arund 0.16% f GDP in relative terms. Regarding the interest risk, Serbian public debt is at the advantage because ver 70% f the central gvernment public debt stck was with fixed interest rate at the end f August 2013. The principle variable interest rate is Euribr. If Euribr changed fr 10 basis pints in relatin t the basic prjectin, interest rates wuld increase by abut 0, 3 billin dinars. Lng-term Strategic Framewrk fr Public Debt Management In rder t minimize the risks f increasing debt and public debt servicing csts, ne needs t achieve the fllwing basic strategic bjectives in the next lng-term perid: the share f debt denminated in dinars shuld be abut 20-25% f the ttal public debt in the medium term; the share f debt denminated in eurs in public debt shuld be at least 60% f debt in freign currency, including future brrwings and transactins; the share f debt with variable interest rate shuld be reduced belw 20% in the mid-term perid;

the average time befre any changes in interest rates are made(atr) shuld be maintained at a level f at least 4.5 years, in accrdance with the abve given measure fr gradual reductin f the share f debt with variable interest rates; weighted average interest rate (WAIR) f internal public debt shuld nt exceed 10% fr the shrt-term and medium-term brrwing; the share f the shrt-term debt (whse maturity is up t ne year) shuld amunt t 15% f the ttal public debt; the average time t maturity (ATM) f dmestic debt shuld be at a level f at least 4 years ver the medium term; the average time t maturity (ATM) f external debt shuld be maintained at the level f 6 ± 0.5 years ver the same time perid. Public Debt Stck Accrding t Natinal Methdlgy and Maastricht Criteria It is imprtant t nte that accrding t natinal methdlgy, public debt stck includes direct bligatins f the central gvernment, as well as all indirect liabilities r the debt guaranteed in favr f public enterprises, sme lcal gvernments, gvernment agencies and ther legal entities the funder f which is the Republic f Serbia. Such stck includes all guarantees irrespective f whether they will be activated in the next perid r nt. As ne f the principal ecnmic and plitical bjectives f the Republic f Serbia is accessin t the Eurpean Unin, ne f the prerequisites is making the dmestic methdlgy cmpliant with Eurpean standards. Fr that reasn, the public debt stck is analyzed regularly n a mnthly basis and n the basis f the criteria established by the Treaty f Maastricht, which represents the systematized guidelines fr the purpse f sustainability f the public debt and fiscal system, r macrecnmic stability. Accrding t these criteria, public debt stck needs t include, apart frm direct bligatins f the central gvernment, the nn-guaranteed debt f lcal authrities, but t exclude the debt based n direct and indirect liabilities fr which payments are nt made by the Republic (central gvernment). Accrding t Maastricht criteria, the public debt is defined in the EU fficial dcument - Prtcl n the Excessive Deficit Prcedure EDP which is a part f the Treaty f Maastricht and Article I (5) f Cuncil Regulatin (EC) N. 479/2009, as the ttal grss debt at nminal value utstanding at the end f the year f the sectr f general gvernment. This debt is measured at nminal value equal t the agreed amunts f debt that the gvernment has t repay t creditrs at maturity. This means that the public debt is nt affected by changes in market yields and it excludes unpaid accrued interest. Table 39. Structure and prjectins f the public debt stck accrding t the Maastricht criteria by 2016 2012 2013/VIII 2013п 2014p 2015p 2016p in billin dinars Ttal direct liabilities 1,658.1 1,788.7 1,928.0 2,238.3 2,517.6 2,724.9 Guaranteed debt 113.3 217.6 209.1 225.7 221.2 197.2 Remained debt f the gvernment sectr 4.9 3.4 2.5 1.2 0 0 Lcal gvernment debt 75.9 79.1 83.1 91.3 98.2 104.6 Debt f scial insurance institutins 0 0 0 0 0 0 Public debt f the Republic f Serbia 1,852.2 2,088.8 2,222.7 2,556.5 2,837.0 3,026.7 Public debt f the Republic f Serbia/GDP 54.7% 55.5% 59.1% 63.8% 66.1% 66.0%

Measures fr Imprving the Market f Dinar Denminated Securities in 2013-2016 perid The market f gvernment dinar-denminated securities has develped cnsiderably in the perid 2009-2013 and reached a value f 395 billin dinars at the end f August 2013. During 2009, the Republic f Serbia increased the vlume f issues f shrt-term dinar denminated securities (three-mnth and six-mnth Gvernment bills), starting in 2010 the issues f 18-mnth and 24- mnth bills. In March 2011, the Republic f Serbia issued fr the first time a 3-year dinar denminated cupn bnd. In cnfrmance with the medium-term strategy fr public debt management, in 2012, the gvernment issued, fr the first time, five-year dinar bnds alng with inflatin-indexed dinar-denminated bnds (in March 2012) and depreciatin dinar-denminated bnds with variable cupn linked t the reference interest rate f the Natinal Bank f Serbia (in August 2012). In March 2013, a seven-year dinar-denminated bnd was issued. In the next threeyear perid nly the ten-year bnd is left t be issued in rder t determine the yield curve f gvernment securities denminated in dinars. In rder t develp market f dinar-denminated securities instead f 18-mnth and 24-mnth gvernment bills tw-year dinar denminated bnds have been issued since the beginning f 2013. Cupn bnds, issued frm January 2013 in the dmestic market, have been calculated n annual level instead n semi-annual level, as it used t be t the end f 2012. Semi-annual calculatin f Cupn bnds has applies nly in dinar denminated securities issued under special prgram in accrdance with the Budget Law. In rder t increase the transparency the framewrk annual brrwing plan has been published n the Public Debt Agency website since the end f 2012 and the end f each quarter, the plan fr the next brrwing quarter in the dmestic financial market is published, achieving thus cnsistency, predictability and transparency f future issues f gvernment securities. In the perid fr which this strategy is adpted, it is als expected that the secndary market fr gvernment securities imprves, resulting in the transparent yield curve n dinars and imprvement f the dinar prtin in financial market, enabling thus the Gvernment f the Republic f Serbia t finance its expenditures mre efficiently and with a less expsure t the freign exchange and ther risks. The current price f the dinar denminated debt is cnditined by the rate f inflatin, reference interest rate f the Natinal Bank f Serbia and the exchange rate f the dinar against the eur and the US dllar; hwever, it is the price f the specific natural hedging f the public debt-t-gdp rati psitin. Graph 34. Structure f the gvernment securities hlders issued in the dmestic financial market n 31 August 2013 6.8% 32.9% 59.5% Banks Investment Funds Insurance A plan fr extending the average maturity f the dinar denminated securities depends n a series f factrs, but primarily n the success f the NBS and the Gvernment in the prcess f dinarizatin and in maintaining inflatin within the set framewrks alng with the rise f cnfidence

in the mnetary and ecnmic plicies f the Gvernment and the NBS, and n the stability f the dinar exchange rate. Frm September 2012 t the end f August 2013, the average maturity f the dinar denminated securities increased t 1.3 years, and a new task is t increase the average maturity f dinar denminated securities t 2 years in the next mid-term perid. Develpment f the dmestic market will be supprted by the fllwing measures: The vlume f issues is cnditined by the market capacity, while creatin f benchmark issues will be based n the repening f the already existing issues. The repening principle will mainly refer t all securities with maturity equal t r lnger than 2 years, as it is evident that these securities need t accunt fr the bulk f secndary trading and have adequate benchmark values; In rder t create a maximum pssible base f investrs and f develping f the secndary market f securities issued n the dmestic market, the unifrm tax treatment f dmestic and freign investrs was created at the clse f 2011 and, in the next perid, effrts will be made t remve all bstacles t a free flw f capital. The present structure f dmestic investrs is verly hmgenus (mainly the banking sectr) and such a structure des nt cntribute t the develpment f the secndary market. Pensin funds and insurance cmpanies (life insurance) have a limited pssibility fr assets placement because f the lw level f develpment f this type f savings. The trend f increasing share f freign investrs and f the change in the base f investrs has been nticeable in the last tw years; the present structure f investrs is expected t remain in the next three-year perid, which culd significantly cntribute t the develpment f the secndary market; Taking int cnsideratin that the Ministry f Finance f the Republic f Serbia, the Natinal Bank f Serbia, the Central Securities and Depsitry Clearing Huse and the Securities Cmmissin set up in 2011 a wrking grup fr the prmtin f trading n the secndary market f dinar denminated securities, the recmmendatins f this wrking grup will be cnsidered by the Ministry f Finance, and will be accepted if deemed apprpriate. It is particularly expected f the wrking grup t estimate the benefits that culd arise frm the intrductin f primary dealers and its cntributin t the develpment f liquidity f the secndary market f securities; The pssibility t carry ut the clearing and settlement f dmestic securities transactins thrugh the internatinal clearing system will be cnsidered in the upcming perid; In the next perid, the Ministry f Finance will be mdifying the auctin platfrm n the basis f the investrs' prpsals in rder t satisfy the interests f bth parties in the best and acceptable manner.