Statement at the Conclusion of an IMF Staff Visit to Montenegro

Press Release No. 14/140
March 28, 2014

A staff team from the International Monetary Fund (IMF), headed by Alasdair Scott, visited Podgorica during March 25-27 to discuss recent economic developments and the authorities’

policy agenda for 2014 and the medium term. The team met with Central Bank Governor Dakic and staff at the Central Bank of Montenegro (CBCG) to discuss the financial sector, ahead of a banking forum on March 28, jointly organized by the IMF and CBCG, that will bring together representatives from private banks, their parent banks, the CBCG, and international financial institutions. The team met with Finance Minister Zugic and staff at the Ministry of Finance, as well as private sector banks and organizations. At the end of the visit, Mr. Scott issued the following statement:

“After contracting in 2012, GDP rebounded strongly in 2013, to 3.5 percent, one of the strongest performances in the region. In particular, the economy has benefitted from high levels of energy production and a number of new investment projects. Output growth is projected to slow modestly in 2014, to 2.7 percent, owing to some limits to tourism capacity, but nonetheless we expect this momentum to continue.

“Some long-standing problems remain. In particular, high levels of nonperforming loans persist, and credit growth has been stagnant. Staff welcomes the initiatives taken by the central bank to facilitate voluntary restructurings. The government should look to complement these measures by boosting the capacity of the judicial system to enforce contracts and by furthering its efforts to increase tax compliance and formalizing activity in the informal economy. Such measures would make it easier for banks to lend at lower rates.

“We are pleased with the steps the authorities have made over the past year to reduce the budget deficit. A combination of important fiscal measures has seen a marked improvement in revenue collection and containment of expenditures. As a result, with the recovery in growth, there has been a substantial improvement in the public finances. The primary balance improved by nearly 3 percent of GDP last year, to a deficit of just over 1 percent.

However, the Smokovac-Matesovo highway project will add substantially to budget deficits and public debt in the coming years, raising risks to fiscal and debt sustainability. To minimize the ensuing debt build-up, the authorities are encouraged to take additional steps to strengthen the underlying budget position. Revenues already appear relatively high, compared with other countries in the region. Hence, the adjustment would need to rely mainly on durable savings from recurrent expenditures. The new commitments incurred by the highway project also make it imperative that budgetary support for the KAP—the aluminum processing plant—be discontinued.

“An IMF team will return to Montenegro for the Article IV Consultations mission in the fall, at which time IMF staff will present a full macroeconomic assessment to the authorities.”



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