Serbia sees 2006 foreign investment topping forecasts at 3.1 billion euros

BELGRADE (Reuters) 

Serbia is likely to attract 3.15 billion euros’ worth of foreign direct investment in 2006, rather than the 2.75 billion euros the government had initially forecast, the Finance Ministry said in a statement yesterday.

After a weak start early in the year, Serbia sold its stakes in a mobile operator and several banks. Nearly 500 million euros came from the privatization of leading drugs maker Hemofarm.

“In the first eight months, foreign direct investment in Serbia exceeded $3.25 billion (2.55 billion euros), twice the amount in the whole of 2005,” the statement said. “The Finance Ministry expects foreign direct investments this year to approach $4 billion.”

Record investment flows and privatization revenue have helped Serbia to post a 3.5-billion-euro balance-of-payments surplus, the ministry added.

The central bank has not yet issued the January-August balance of payments report. January-July figures show a surplus of 1.8 billion euros, despite the widening current account deficit of 1.26 billion euros, from 790 million euros in the same period last year.

The ministry said official hard currency reserves have grown by the same 3.5 billion “enabling the dinar to firm.”

Serbia’s foreign exchange reserves hit 8.3 billion euros in August – a level not seen in Belgrade since the breakup of the former Yugoslavia in the early 1990s. Official reserves stood at 4.6 billion euros in December.

Ample hard currency liquidity has supported the dinar since May, with the currency now testing a psychological barrier of 80.0 to the euro. The central bank intervened on August 17 to stop the dinar moving past that point. The dinar was changing hands at 85.5/euro at the end of 2005.

“The firm dinar as well as tight monetary and fiscal policies have contributed to lowering of inflation, which will have a positive impact on the growth of foreign direct investment in the future,” the Finance Ministry said.

The firm dinar has made Serbia’s imports a lot cheaper and, together with declining global crude oil prices, contributed to easing of price pressures in a highly import-reliant economy.

After a negative 0.2 percent monthly inflation in September, which pushed the year-on-year figure down to 11.6 percent, the government is confident that Serbia will have single-digit inflation this year, from 17.7 percent in 2005
 

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