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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2006 BELGRADE STOCK EXCHANGE ECONOMIC AND POLITICAL DEVELOPMENTS Economic and Political Environment Events in the 2006 have highlighted the fragility of the ruling minority coalition in Serbia, led by the Democratic Party of Serbia DSS. The government will be confronted by a series of potentially divisive issues, and Serbia is likely to face a general election before the next scheduled poll at the end of 2007. Montenegro has declared independence following a referendum on May 21st 2006. It was a psychological blow for Serbia's ruling minority coalition and for the DSS leader and prime minister, Vojislav Kostunica, who had been a strong supporter of the state union. Serbia has accepted the referendum result, but negotiations on issues arising from the break-up could take several months. Membership of international organizations has passed automatically to Serbia under the 2003 Constitutional Charter. The government faces several difficult issues: talks on Kosovo's future status and the EU's demand that it transfer the former Bosnian Serb military commander, Ratko Mladiç, to the International Criminal Tribunal for former Yugoslavia (ICTY) in The Hague. The break-up of the state union is unlikely to delay or disrupt the SAA talks significantly, since the EU had already been negotiating separately with Serbia and Montenegro. The EU called off the latest round of talks, scheduled for May 11th, after Serbia failed to hand over Mr. Mladiç by the EU's April 30th deadline, but it has left open the possibility that negotiations will be speedily resumed should Serbia be seen to be co-operating fully with the ICTY. Economic Performance The completion of the IMF's three-year arrangement with Serbia and Montenegro in February 2006 triggered the remainder of the debt write-off agreed with the Paris Club in 2001. Strong inflows of foreign direct investment (FDI) and high levels of foreign exchange reserves in Serbia have reduced dependence on external assistance. However, multilateral lenders and foreign investors remain concerned about the level and structure of public spending, the size of public-sector wage increases, and the continued presence of large, unreformed state-owned enterprises (SOEs). Forecast is that Serbia will negotiate fresh agreements with the IMF in the near future. Fiscal and monetary policies are expected to remain tight, with the authorities coming under pressure to speed up privatization. Real GDP in Serbia grew by 6.3% year on year in the first quarter of 2006, driven by a manufacturing recovery and continued rapid expansion of trade, financial services, and transport and communications. In view of Serbia's strong first-quarter performance forecast for real GDP growth in 2006 has risen to 6% (from 5% previously). Key drivers will include continued investment in newly privatized companies; relatively robust consumer demand, driven by continued real wage growth and the expansion of commercial bank lending; and an increase in public investment. An acceleration of real GDP growth in the euro zone is expected in 2006, to 2%. Domestic demand in the euro area will continue to be weak, constraining export growth for Serbia, which conducts about half of its foreign trade with the EU. The current account deficit will remain large, at an average of more than 9% of GDP in 2006-07. Inflation is forecast to fall to 12.5% by the end of 2006, as fiscal and monetary policies are kept tight and the public sector undergoes further restructuring, followed by a further slowdown in inflation in 2007, to about 10%. The Serbian authorities are currently aiming to limit the dinar's nominal depreciation against the euro in order to reduce inflationary pressures and contain external debt-servicing costs. This policy carries risks, since it could endanger Serbia's external competitiveness, and the IMF is urging the authorities to restructure and privatise SOEs, and to improve the investment climate. The US dollar trade gap on the balance of payments fell considerably in 2005, reflecting strong Serbian export growth–itself partly explained by underreporting in the period, before the introduction of value-added tax. The current account deficit for the common state is estimated at 8.8% of GDP in 2005, down from 12.5% in 2004. Enterprise restructuring, privatization and other supplyside reforms should make exporters more competitive, despite the expected real effective appreciation of the dinar. Strong consumer demand and high international oil prices in 2006-07 will put upward pressure on import bills. It is expected the US dollar trade gap to widen, anticipating current account deficits in Serbia of 9.5% of GDP in 2006 and 8.7% in 2007. * The Economist Intelligence Unit Ltd., July 2006. Key Information Contacts Securities Commission of Montenegro www.scmn.cg.yu Central Depositary Agency www.cda.cg.yu Central Bank of Montenegro www.cb-cg.org Ministry of Finance www.ministarstvo-finansija.cg.yu Montenegro Statistical Office www.monstat.cg.yu PAGE 58
FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2006 BELGRADE STOCK EXCHANGE SERBIA AND MONTENEGRO ECONOMIC CHARTS AND TABLES 2001 2002 2003 2004 2005 2006 GDP, current prices, billion CSD 708.4 919.2 1,095.4 1,310.3 1 1,625.5 1 1,993.0 2 GDP, milliion USD 10,840.4 14,282.0 19,100.0 22,399.0 1 24,494.0 1 26,712.0 2 GDP per capita, USD 1,445.4 1,904.3 2,535.8 3,006.5 1 3,298.1 1 3,609.7 2 GDP, real growth in % 5.1 4.5 2.7 9.3 1 6.3 1 6.3 3 I-V 2006 Economic Activity, growth rates I-V 2005 Industrial production, physical volume 0.1 1.7 -3.0 7.1 0.8 5.9 Agriculture, physical volume 18.7 -2.5 -5.7 19.5 -5.3 1 - Forest exploitation -17.6 6.9 5.6 3.1 1 - - Construction - working hours -13.8 -7.4 31.0 5.2 -7.0 5.3 3 - work value 30.1 64.7 17.2 35.7 17.6 59.5 3 Transport, services volume 9.6 6.9 5.2 4.9 3.8 13.6 3 Post activities and Telecommunication, services volume 20.9 3.1 31.3 26.7 33.3 36.5 3 Real turnover in retail trade 19.7 23.9 12.6 17.9 28.4 10.0 Tourists nights -6.5 0.2 -7.2 -1.0 -2.0 -3.0 Prices and consumer prices, growth rates Retail prices, end of period 40.7 14.8 7.8 13.7 17.7 5.7 4 Retail prices, period average 91.8 19.5 11.7 10.1 16.5 15.2 4 Producers’ prices of industrial products, end of period 87.7 8.8 4.6 9.1 14.2 6.4 4 Consumer prices, end of period 93.3 16.6 9.9 11.4 16.2 5.9 4 External trade, million USD I-V 2006 Export of goods 1,721.0 2,075.0 2,756.2 3,523.4 4,553.4 2,014.3 Export of goods to the EU 799.0 906.0 1,097.0 1,815.0 2,411.0 1,190.3 Import of goods 4,261.0 5,614.0 7,476.8 10,753.2 10,575.7 4,666.1 Import of capital goods 5 - - - 3,109.9 2,536.4 1,027.6 Import of intermediary goods 5 - - - 3,571.3 3,782.2 1,645.0 Trade balance deficit -2,540.0 -3,539.0 -4,720.6 -7,229.9 -6,022.3 -2,651.8 Current account deficit (donations excluded) 876.0 1,743.0 1,943.0 3,308.0 2,582.0 -1,082.0 Current account deficit (donations excluded), %GDP 8.7 13.5 11.7 14.7 10.0 - Trade balance, total 491.0 1,111.0 1,270.0 694.0 2,027.0 1,679.0 Direct foreign investments, net, million USD 165.0 475.0 1,360.0 966.0 1,481.0 509.0 Investments in fixed funds Total investments in fixed funds, billion CSD 66.8 122.9 157.3 280.5 304.0 - Investments in fixed funds participation in GDP, % 9.4 13.4 14.4 21.4 18.7 - Monetary and foreign exchange indicators, end of period values V 2006 Dinar reserve money, million CSD 41,448 69,323 69,996 76,969 94,220 79,866 Money suply M1, million CSD 58,233 93,815 99,544 111,235 144,884 152,300 Money suply M3, million CSD 125,415 191,491 245,062 323,465 459,650 509,126 Total dinar investments of banks 55,662 92,285 122,337 206,170 355,035 427,406 Corporate investments 49,531 73,072 90,899 138,382 224,254 263,513 Retail investments 5,008 16,020 28,643 64,441 124,937 157,309 Foreign-exchange reserves of NBS, million USD 1,169 2,280 3,550 4,245 5,843 7,921 Discount rate of NBS, annual level, % 16.43 9.5 9.0 8.5 8.5 8.5 Exchange rate CSD:US$ 66.84 64.19 57.44 57.94 72.22 68.17 Exchange rate CSD:EUR 59.49 60.75 65.25 78.88 85.50 87.64 Foreign exchange savings, million EUR, end of period values 329.8 754.6 1,037.8 1,424.8 2,238.7 2,530.2 Dinar savings, million EUR, end of period values - 41.5 48.9 36.3 35.6 42.5 Employment, earnings and pensions Number of employees, average, in 000 2,102 2,067 2,040 2,051 2,069 2,022 1 Number of people looking for job, end of period values, in 000 780.5 904.5 944.9 969.9 990.7 1,008.8 Actively unemployed people, end of period values, in 000 895.7 919.3 Net income, period average, in CSD 6,078 9,208 11,500 14,108 17,443 19,881 - real growth rate 16.5 29.9 13.6 10.1 6.4 9.3 Gross income, period average, in CSD 8,691 13,260 16,612 20,555 25,514 29,087 - real growth rate 16.0 30.0 14.0 11.1 6.8 9.3 Average pension, period average, in CSD 4,107 6,546 7,844 9,244 11,484 12,601 - real growth rate 18.4 36.7 9.0 5.7 6.9 2.9 Total income from privatization of companies and banks, in million EUR 331.6 869.4 186.4 743.2 150.2 6 Total Belgrade Stock Exchange turnover, million CSD 50,156.5 102,298.2 93,070.4 40,583.7 48,350.7 38,020.9 6 - long term securities turnover, million CSD 277.3 9,740.3 40,644.6 34,566.3 48,350.7 38,020.9 6 1 Previous results 2 Estimated 3 January-March 2006/January-March 2005 4 Data refer to June 2006 5 Classification in use as of 2004 6 January-June 2006 Source: Belgrade Stock Exchange PAGE 59
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