Government Securities, Money Market and Cash Management in Serbia

Abstract

This paper presents the main issues and key recommendations relevant to the government securities market, money market, and government cash management in Serbia. In terms of the government securities market, the paper analyzes the current T-bill program, euro denominated frozen savings (FFS) bonds, and dinar T-bonds. The paper also analyzes the pros and cons of future funding options: (i) international foreign currency borrowing; (ii) fresh FFS euro bonds; (iii) fixed rate dinar bonds; (iv) floating rate dinar Bonds; and (v) euro indexed dinar bonds. In terms of the money market, the paper recommends the introduction of interbank repos, and further improving the transparency on the interbank market. In both cases, the paper recommends that banks that are not well-capitalized and of poor credit standing should not be allowed to stand in the path of desirable reforms. The paper favors' the introduction of reverse repos by National Bank of Serbia (NBS). The paper also points out that NBS has started issuing repos (out to 60 days) in its own bills, thereby segmenting the bill market and undermining T bill issuance. The paper recommends that NBS make best efforts to reduce the scale of its interventions using its own paper and to rely instead on T bonds for repos purposes. Ministry of finance (MOF), for its part, should commensurately increase T bill issuance and also initiate Dinar (the local currency of Serbia) (SRD) T bond issuance not beyond three year maturity - as the budgeting situation permits - a process that will assist the NBS in its efforts to manage liquidity and help to develop the capital markets. In terms of government cash management, the paper points out that the current Treasury Department has a well-developed system of budgetary control. However it does not incorporate an efficient cash management system. This entails forecasting future cash flows and, ideally, the ability of the Treasury to transact in the market to manage over (or under) funding. The MOF should improve its cash forecasting capacity.