The Ministry of Finance is considering whether the hedging arrangement, i.e. currency risk insurance for loan repayment to the Chinese Exim Bank for the construction of the priority section of the highway, will continue or be terminated, as it was fixed for two years.
The department headed by Aleksandar Damjanović told the News that they will soon propose a decision to the Government that will be the least risky for the country in relation to the trends of the dollar and the euro.
Bearing in mind that the hedging arrangement was concluded in July 2021, for a period of 14 years, with a mandatory termination after two years, now is the moment when the Ministry of Finance and the banks, as contracting parties, consider whether the hedging arrangement will continue or to be interrupted – they stated from that government department.
They added that in the coming period, the Ministry of Finance will propose to the Government a decision that will be the least risky for the state and that will take into account the current trends in the relationship between the dollar and the euro, as well as the forecasts of the relevant international financial institutions in relation to the future period related to repayment obligation based on the loan for the construction of the priority section of the highway.
The government of Milo Đukanović took a loan of USD 944 million for the construction of the first section of the highway in October 2014 from the Chinese Exim bank, but did not contract insurance against currency risk at that time.
Due to the unfavorable trend of the exchange rate between the dollar and the euro in recent years, the amount of the loan varied, and was over 100 million more in EUR than the initial amount. For this reason, the Government of Zdravko Krivokapić in 2021, at the proposal of the Ministry of Finance led by Milojko Spajić, immediately before the payment of the first installment due in July of that year, “hedged” the loan for the amount that had been withdrawn from the Chinese bank by then.
Hedging is an investment that serves to reduce or eliminate the risk associated with another investment.
Thanks to the hedging arrangement, the loan is now paid in euros, at an average interest rate of 0.8%, instead of dollars at an interest rate of two percent.
The non-governmental organization Action for Human Rights previously announced that, according to data provided by the Ministry, the hedging contract is worth USD 818 million, which is less than the total debt of USD 944 million. That organization disclosed that the state concluded a hedging arrangement with the American Goldman Bank in the amount of 175 million, Merrill Bank in the amount of 314.6 million, Societe Bank in the amount of 210 million and Deutsche Bank in the amount of 118.3 million EUR, while the creditor is still China’s Exim Bank.
The arrangement is for 14 years, which is how long the loan repayment lasts, but the conditions are reviewed every two years.
The Ministry of Finance announced that four installments of the highway loan in the total amount of USD 157.79 million have been repaid so far, of which USD 124.88 million is principal and USD 32.9 million is interest. The remaining debt based on the principal amounts to USD 786.85 million – the Ministry stated.
