CONTINUOUS PREDICTIONS OF ECONOMIC COLLAPSE DO NOT CONTRIBUTE TO ECONOMIC DEVELOPMENT OF SRPSKA

BANJA LUKA, JANUARY 20 /SRNA/ - The Republika Srpska meets all of its obligations regularly and on time, has continuous access to the domestic capital market and regularly refinances its maturing liabilities, which represents the best rebuttal of long-standing claims about an alleged bankruptcy that, despite constant announcements, has never occurred, the Ministry of Finance of Srpska told SRNA.

Commenting on claims published in certain media outlets regarding the indebtedness of the Republika Srpska, the Ministry of Finance said it considers it necessary to point out to the public a number of inaccurate, oversimplified and tendentious interpretations that do not reflect the actual state of public finances nor the basic principles of how financial markets function.

"First and foremost, it is important to emphasize that analyses periodically presented to the public persistently confuse the concepts of liquidity, solvency and market financing conditions, which leads to incorrect and sensationalist conclusions about the alleged fiscal unsustainability of the Republika Srpska," the Ministry stated.

Claims that the level of interest rates directly and exclusively reflects the "unreliability" of a borrower, the Ministry said, represent an oversimplification that does not correspond to the reality of financial markets.

"Interest rates depend on a wide range of factors, including the maturity of borrowing, the type of financial instrument, market structure, liquidity, regulatory requirements and the distribution of interest-rate and currency risk. Comparing interest rates paid by citizens with those at which the Republika Srpska borrows is methodologically incorrect.

Citizens mostly borrow long-term, with collateral and variable interest rates linked to Euribor, while the Republika Srpska predominantly borrows through short and medium-term instruments with fixed interest rates, under conditions of limited depth of the domestic capital market. In such cases, higher interest rates do not represent a `penalty` but rather a market reflection of maturity, liquidity and the structure of the instrument," the Ministry explained.

They emphasized that such practice is not specific to the Republika Srpska, but is common throughout Europe and the region.

"The statements of economist Zoran Pavlović, which reduce the borrowing of the Republika Srpska to alleged `pure money trading` and almost automatic bank profits, represent a gross simplification and incorrect interpretation of the basic principles of the financial system.

The claim that banks `take money from citizens at 2.5 to three percent and lend it to governments at 5.5 percent,` with the implicit message that this is a safe and risk-free profit, ignores key elements of banking operations: regulatory capital requirements, mandatory reserves, liquidity costs, maturity risk, management costs and provisions for credit risk," the Ministry stressed.

They noted that the difference in interest rates is not the same as profit, and that presenting this relationship as simple arithmetic demonstrates a lack of serious financial analysis.

"Particularly problematic is the fact that Mr. Pavlović has for many years been publicly presenting claims about an inevitable financial collapse, the inability to service obligations and the unsustainability of public finances in the Republika Srpska.

Despite these continuous announcements, the Republika Srpska services all of its obligations regularly and on time, refinances maturing liabilities and maintains access to capital markets. The fact that the repeatedly announced bankruptcy scenarios have not materialized seriously calls into question the analytical foundation of such assessments," the Ministry said.

In addition, comparisons with measures introduced by certain countries in extraordinary circumstances, such as Hungary, are made without any context of the institutional, regulatory and fiscal frameworks in which those measures were adopted.

"Such selective and populist comparisons do not represent a relevant argument in a serious discussion on public finances, but serve solely to create a negative narrative without grounding in real indicators. Public discourse on borrowing requires responsibility, precision and consistency," the Ministry emphasized.

The continuous presentation of dramatic assessments that are not confirmed in practice cannot be considered expert analysis, but rather the repetition of preconceived views that fail the test of reality, the Ministry stated.

They added that rhetorical questions about "who will repay the debt" ignore basic principles of public finance.

"Public debt is not assessed through the absolute number of inhabitants, but through the debt-to-GDP ratio, fiscal capacity and the dynamics of economic growth. Demographic challenges exist across Europe, but they do not in themselves imply fiscal collapse or an inability to service obligations.

Critical analysis of borrowing is legitimate and desirable, but it must be based on facts, economic logic and a comprehensive understanding of context. Selective comparisons, simplified interpretations and continuous predictions of financial collapse do not contribute to objective public information or economic development, but solely to the creation of dissatisfaction among citizens based on falsehoods and half-truths," the Ministry pointed out.

They concluded that the Republika Srpska will continue to pursue a responsible public finance management policy, based on real market conditions and the regular fulfillment of all assumed obligations.