Serbia has turned to the IMF and the United Arab Emirates for help in managing its soaring debt costs, highlighting the impact of rising interest rates and the economic slowdown in European emerging markets.

The IMF confirmed to the Financial Times on Tuesday that Belgrade had called for talks on a so-called stand-by arrangement. Such an arrangement would allow Serbia to benefit from IMF support in case Belgrade cannot sell its bonds to investors.

The authorities hope that the establishment of the Fund’s insurance will prevent further increases in the country’s borrowing costs in international markets, which have more than tripled since the beginning of the year, rising from less than 2% to more than 6%.

“You don’t want to have a stand-by arrangement with the IMF if you’re a stable country, but maybe it’s better to eat some humble pie now to make sure you don’t refinance at more than 6%,” he said. said Tamara Basic Vasiljev, senior economist at Oxford Economics.

News of the IMF request comes after Abu Dhabi offered Serbia a $1 billion loan at 3%. “If we were to enter the financial market, it would cost us at least two and a half times more,” Serbian President Aleksandar Vučić said in a statement on Monday, adding that Belgrade was facing “resistance from all “. investors, because they are mainly Western financial investors”.

Serbia is one of many Central and Eastern European countries, including Hungary and Romania, that have seen their borrowing costs soar due to sharp interest rate hikes by the US Federal Reserve and of the European Central Bank.

The country’s most liquid euro-denominated bond traded with a yield of 6.3% on Tuesday, down from 1.8% at the end of last year.

As funding costs have risen across Europe, riskier borrowers – like Serbia – have seen yields climb at a much faster pace. The yield gap between Serbia and Germany widened from 2.2 percentage points in January to just under 5 percentage points.

Credit rating agencies have warned Belgrade that its government and banking sector are exposed to funding risk due to a high share of foreign currency lending. The economic outlook is getting bleaker. Its central bank believes a slowdown in the euro zone, Serbia’s biggest trading partner, will weigh on growth, while the war in Ukraine has triggered a rise in inflation to 13.2% on the year until August.

Serbia has also become more politically isolated from the rest of Europe since the start of the Russian invasion after refusing to join Western sanctions against Moscow. The European Parliament, in its June report on Serbia, urged Belgrade to “reassess its economic cooperation with Russia”.

Vučić, who was re-elected for a new term as president in April, insists on keeping diplomatic channels to Moscow open even as Serbia continues to aim for possible EU membership.

Abu Dhabi is already a major investor in Serbia, with Emirati companies owning a stake in the national airline and developing a $3.5 billion megaproject on the banks of the Danube in Belgrade.

Discussions with the IMF will continue in the coming weeks.

The IMF and Belgrade will assess the economic and financial situation and determine the scale of the country’s overall financing needs as well as an appropriate policy response, the Fund said.

Serbia entered into a three-year, $1.2 billion stand-by agreement with the Fund in February 2015, but did not draw on it.