Statement at the Conclusion of an IMF Staff Visit to MontenegroPress Release No. 13/48
February 14, 2013
A staff team from the International Monetary Fund (IMF), headed by Nadeem Ilahi, visited Podgorica on February 6-13 to discuss recent economic developments and policy challenges.
At the end of the visit, Mr. Ilahi made the following statement:
“Economic activity in Montenegro stalled in 2012 as a result of severe weather and a sharp slowdown in metals production. The economy is now facing growing vulnerability from the persistent fiscal imbalances that have resulted in a rapid increase in public debt in recent years. In 2012 the fiscal deficit exceeded the revised target, resulting in an increase in public indebtedness. While there has been considerable progress in stabilizing the banking system, lending continued to contract, though at a declining rate, as banks remain hampered by a high level of problem loans.
“A modest recovery in economic activity is expected in 2013, but the outlook remains constrained by the problems in the metals sector and the challenging international environment. Fiscal buffers are exhausted and thus budgetary consolidation is an urgent priority as it will lower the government’s borrowing need and reverse the upward trajectory of public debt (as also recognized by the 2013 budget). The government has adopted some fiscal measures to underpin the budget and has strengthened efforts to reduce the grey economy. Nevertheless, tangible and significant additional spending and revenue measures would be needed to achieve the 2013 budget deficit target. This would also constitute an important step toward the multi-year fiscal consolidation needed to restore fiscal buffers and preserve medium-term fiscal and debt sustainability. Improvements in judicial and administrative procedures would help in addressing the resolution of problem loans. Further progress on the structural reform agenda would complement fiscal consolidation and ensure economic growth is put on a sustainable footing.
“The IMF team thanks the authorities for open and constructive discussions and looks forward to continuing the dialogue during the upcoming 2013 Article IV consultation.”