## 1. Net Errors and Omissions Before/After Improvements

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### Summary of mission outcomes and top priorities
- STA conducted a TA mission during December 4–15, 2017 to support compilation of external sector statistics (ESS) in Montenegro.
- Mission focus: assist Central Bank of Montenegro (CBM) in preparing IIP, EDS, Reserves Data Template (RDT), and addressing persistent net errors and omissions.
- Montenegro does not participate in the Eurosystem but is fully eurorized; euro circulating in Montenegro should be included in IIP.
- Agreed methodology to estimate euro circulating in Montenegro using currency in circulation/deposits ratio from neighboring countries.
- Net errors and omissions were identified as primarily caused by remittances brought into Montenegro in cash; mission proposed methodology to estimate them.
- Net errors and omissions in Montenegrin balance of payments have decreased significantly by implementing recommendations.

### Top priority recommendations (Target Date: June 2018)
- Start compiling IIP and EDS — Responsible: CBM/MOF.
- Estimate euro circulating in Montenegro — Responsible: CBM.
- Estimate remittances brought in cash — Responsible: CBM.
- Start compiling and reporting to the IMF direct investment position data in IIP.
- Start compiling and reporting to the IMF portfolio investment position data in IIP.
- Estimate currency in circulation using currency in circulation/deposits ratio and incorporate in IIP.
- Start compiling and reporting other investment position data in IIP.
- Start compiling EDS and report to the World Bank.
- Start compiling deposits data for other sectors using LBS data, supplemented by Form RN-1.
- Estimate remittances brought in cash using the cash/bank transfer ratio and incorporate results in balance of payments.
- Start recording reinvested earnings in income and financial accounts.
- Start compiling deposits data for other sectors using LBS data, supplemented by Form RN-1.

### Detailed technical assessment — key actions and target dates
- High priority (June 2018)
  - Start compiling and reporting direct investment position data in IIP.
  - Start compiling and reporting portfolio investment position data in IIP.
  - Estimate currency in circulation using currency in circulation/deposits ratio and incorporate in IIP.
  - Start compiling and reporting other investment position data in IIP.
  - Start compiling EDS and report to the World Bank.
  - Estimate remittances brought in cash using cash/bank transfer ratio and incorporate in balance of payments.
  - Start recording reinvested earnings in income and financial accounts.
  - Start compiling deposits data for other sectors using LBS data, supplemented by Form RN-1.
- Medium priority (June–December 2018)
  - Adjust information on euro bond issuance to reflect residents’ holdings using ITRS — Target Date: June 2018.
  - Incorporate “other changes” in portfolio investment position data (exchange rate and stock index effects) and cross-check equity liabilities with CPIS — Target Date: June 2018.
  - Explore expanding coverage of FDI or loan asset/liability survey to collect portfolio position data — Target Date: December 2018.
  - Implement planned trade credit survey and incorporate results in balance of payments — Target Date: December 2018.
  - Obtain data from MOF, prepare draft RDT, submit for STA review — Target Date: June 2018.
  - Explore introducing a question on cash/bank transfer ratio in surveys with other agencies — Target Date: December 2018.
- Ongoing
  - Continue quarterly FDI survey targeting largest DIEs and resident direct investors.
  - Keep approaching the MIA and collaborate with other agencies to get comprehensive traveler information.
  - Keep attending training courses for ESS.

### International Investment Position (IIP) — Direct Investment findings and recommendations
- Data and coverage
  - CBM conducts annual FDI survey covering 1,600 enterprises; annual response rate: more than 90 percent.
  - Pilot quarterly FDI survey (Q1 2017) response rate: around 50 percent; mission advised focusing quarterly survey on largest enterprises while keeping annual frequency for smaller ones.
  - Largest 40 enterprises account for around 90 percent of total direct investment liabilities.
  - Less than 20 enterprises have direct investment assets.
  - Investment in real estate accounts for 16 percent of direct investment liabilities.
  - Reinvested earnings for DIEs were negative during 2010 to 2016 and were not recorded in BOP; mission and CBM agreed reinvested earnings should be recorded and data for 2010 onward revised, excluding anomalous negative values from a few large DIEs.
- Recommendations (Direct Investment)
  - Start compiling and reporting to the IMF direct investment position data in IIP (Top priority by June 2018).
  - Continue quarterly FDI survey targeting largest DIEs and resident direct investors (High priority, ongoing).
  - Start recording reinvested earnings in income and financial accounts in balance of payments (High priority by June 2018).

### International Investment Position — Portfolio Investment findings and recommendations
- Data and methods
  - General government portfolio liabilities from euro bonds: MOF is source; mission recommended adjusting issuance data with ITRS to reflect residents’ holdings.
  - DTC portfolio data sourced from MFS.
  - Portfolio investment assets for other sectors sourced from ITRS; position data are estimated by accumulating transactions and adjusting for exchange rate changes and stock index changes.
  - Equity security liabilities: accumulate flow data and adjust using changes in Montenegrin stock index; cross-check with CPIS-derived liabilities.
  - Medium term: collect position data directly rather than accumulating transactions.
- Recommendations (Portfolio Investment)
  - Start compiling and reporting portfolio investment position data in IIP (Top priority by June 2018).
  - Adjust euro bond issuance information to reflect residents’ holdings using ITRS (Medium priority by June 2018).
  - Incorporate “other changes” in portfolio position data for exchange rate and stock index effects and cross-check equity liabilities with CPIS (Medium priority by June 2018).
  - Explore expanding FDI or loan asset/liability survey coverage to collect portfolio position data (Medium priority by December 2018).

### Currency in circulation
- Issue
  - Montenegro is fully eurorized; euro circulating in Montenegro should be included in external assets/IIP.
  - CBM had difficulty estimating euro circulating, preventing IIP compilation for several years.
- Agreed methodology
  - Apply currency in circulation/deposits ratio from neighboring countries that issue their own currencies to resident deposits in Montenegro; ratios are consistent among neighbors and show a declining trend.
- Recommendation
  - Estimate euro circulating in Montenegro using agreed currency in circulation/deposits ratio and incorporate it in the IIP (Top priority by June 2018).

### Deposits, Loans, and Trade Credit/Advances — coverage and planned actions
- Deposits and other investment
  - LBS data should be supplemented by Form RN-1 to cover deposits with nonresident banks that do not report to the LBS.
  - About half of the deposits reported by Form RN-1 are with nonresident banks that do not report to the LBS (around 8 million euro as of end-2016).
  - CBM indicated deposits with nonresident banks not covered by LBS or Form RN-1 (e.g., households’ deposits with Serbian banks) are not significant.
  - LBS will be used to capture data for other sectors together with information from Form RN-1.
- Loans
  - Form KO-1 (loan assets) was submitted by 62 enterprises, total amounted to 35.5 million euro (as of end-2016).
  - Form KZ-1 (loan liabilities) was submitted by more than 1,000 enterprises, total amounted to 2 billion euro (as of end-2016).
- Trade credit/advances
  - CBM plans to introduce a survey to capture trade credit/advances in 2018; target enterprises selected by comparing customs declarations with ITRS payment information.
  - If survey results indicate high quality, start recording trade credit/advances in balance of payments starting in December 2018.
- Recommendations
  - Start compiling and reporting other investment position data in IIP (Top priority by June 2018).
  - Start compiling deposits data for other sectors using LBS data, supplemented by Form RN-1 (High priority by June 2018).
  - Implement planned trade credit survey and incorporate results in balance of payments (Medium priority by December 2018).

### External Debt Statistics (EDS)
- Preparation of IIP covered items required for EDS.
- In cooperation with MOF, CBM can compile core tables for e-GDDS participants and Table 6 for SDDS subscribers.
- Head of CBM’s Balance of Payments Division participated in EDS training and agreed procedures with World Bank to start reporting.
- Recommendation: Start compiling EDS in cooperation with MOF and reporting to the World Bank (Top priority by June 2018).

### Reserves Data Template (RDT)
- Mission provided guidance on defining, measuring, and recording reserve assets and reserve-related liabilities in an eurorized economy covering Sections I–IV.
- CBM does not have deposits with domestic banks to be recorded in Section I.B.
- Scheduled outflows/inflows for euro bonds and loans recorded in Section II; contingent liabilities in Section III; currency of denomination in Section IV.
- MOF requested time to establish procedures to provide detailed information (e.g., maturity of guarantees and debt service schedules) monthly.
- Once MOF data are received, CBM plans to prepare a draft RDT, submit for STA review, then report to STA monthly and post on IMF website.
- Recommendation: Obtain data from MOF, prepare draft RDT, submit for STA review (Medium priority by June 2018).

### Balance of Payments — Net Errors and Omissions; Remittances
- Remittances recorded using ITRS cover bank and money transfer operator flows; ITRS does not cover cash remittances brought into Montenegro.
- Mission proposed estimating cash remittances by applying a cash/bank transfer ratio based on neighboring countries; CBM acquired confidential ratios and uses the average to estimate cash remittances.
- Mission assessed the average ratio as reasonable given Montenegro’s full eurorization and emigrant behavior.
- CBM incorporated cash remittances, reinvested earnings for direct investment, and deposits for other sectors; after these improvements, net errors and omissions and current account deficit decreased significantly.
- Planned improvement in FDI survey (including direct investment in kind) should further improve net errors and omissions.
- Recommendations
  - Estimate remittances brought in cash using the cash/bank transfer ratio and incorporate results in balance of payments (Top priority by June 2018).
  - In medium term, explore introducing a question on cash/bank transfer ratio in surveys (e.g., household survey) in collaboration with other agencies (Medium priority by December 2018).

### Goods and Services; Travel — data sources and estimation methods
- Merchandise trade
  - Main source: foreign trade statistics compiled by MONSTAT; CBM verifies MONSTAT data with ITRS.
  - Freight estimated at 3.03 percent of the c.i.f. price.
  - Insurance considered insignificant given predominant imports from neighboring countries.
  - Freight and insurance for imports estimated based on data from largest importers covering around 80 percent of total imports.
- Travel (credit) calculation
  - Personal travel: MONSTAT monthly survey overnight stays × average expenditure per day by region.
  - Number of overnight stays at unregistered accommodations estimated at 30 percent of stays at hotels and registered accommodations and added to the total.
  - CBM estimates average expenditures from websites and phone contacts for major hotels and restaurants every three years; NTA, Ministry of Tourism, and Hotel Association provide price information.
  - Health-related, education-related, and business travel data taken from ITRS.
- Traveler information
  - MONSTAT, NTA and CBM requested traveler information from MIA, but MIA’s outdated computer system could not provide needed information.
  - Mission suggested continued approaches to MIA so comprehensive traveler information can be obtained without surveys; MIA data could include nationality and length of stay and help estimate travel (debit) and compensation of employees (credit).
- Additional note
  - The 2005 survey indicated 50 percent of private accommodations were not registered; CBM adjusted the share to 30 percent reflecting the impact of recent government campaign to decrease informal economy.
- Recommendation: Keep approaching the MIA collaborating with other agencies to get comprehensive information on travelers (Medium priority, ongoing).

### Staff resources in the Balance of Payments Division
- Current staffing
  - Division consists of seven staff including the head (one staff member studying abroad will return in September 2018).
  - Two staff are specialized in handling the ITRS.
- Mission recommendation
  - Allocate at least three additional staff to the Balance of Payments Division to start producing IIP, EDS, and RDT and conduct quarterly FDI survey.
  - Compilation and reconciliation of position data sets required to subscribe to the SDDS; sufficient resources should be allocated.
  - Staff should keep attending IMF and other international training courses and frequent staff changes should be avoided.
- Recommendation summary
  - Allocate three additional staff to the Balance of Payments Division (High priority by December 2018).
  - Keep attending training courses for ESS (High priority, ongoing).

### Key numeric facts (preserve exact figures)
- Mission dates: December 4–15, 2017.
- STA’s e-GDDS mission: June 28-July 4, 2017.
- FDI survey coverage: 1,600 enterprises.
- FDI survey response rate: more than 90 percent (annual); around 50 percent (pilot quarterly).
- Largest 40 enterprises account for around 90 percent of total direct investment liabilities.
- Less than 20 enterprises have direct investment assets.
- Investment in real estate: 16 percent of direct investment liabilities.
- Top priority target dates: June 2018 for multiple actions; December 2018 for selected medium-term items.
- Resource allocation target: Allocate three additional staff to Balance of Payments Division — Target Date: December 2018.
- Figure axis labels for Net Errors and Omissions (Million Euro): -100, -50, 0, 50, 100, 150, 200, 250, 300.

*Source: International Monetary Fund — STA mission to Montenegro (December 4–15, 2017).*

### 1. Net Errors and Omissions Before/After Improvements _________________________________________ 5

### 1. Net Errors and Omissions Before/After Improvements _________________________________________ 5

### Summary of mission outcomes and top priorities
- IMF Statistics Department (STA) conducted TA mission during December 4–15, 2017 to support compilation of external sector statistics (ESS) in Montenegro.
- Mission focus: assist Central Bank of Montenegro (CBM) in preparing IIP, EDS, Reserves Data Template (RDT), and addressing persistent net errors and omissions.
- Montenegro: does not participate in the Eurosystem but is fully eurorized; euro circulating in Montenegro should be included in IIP.
- Table 1 (Data Dissemination/Participation Status for Main ESS Datasets in Montenegro):
  - Balance of Payments: Yes (Quarterly data, BPM6 basis)
  - International Investment Position (IIP): No
  - External Debt Statistics (EDS): No
  - Reserves Data Template (RDT): No
  - Coordinated Direct Investment Survey (CDIS): Yes (Inward investment only)
  - Coordinated Portfolio Investment Survey (CPIS): No
- Mission agreed methodology to estimate euro circulating in Montenegro using currency in circulation/deposits ratio from neighboring countries.
- Net errors and omissions were identified as primarily caused by remittances brought into Montenegro in cash; mission proposed methodology to estimate them.
- Net errors and omissions in Montenegrin balance of payments have decreased significantly by implementing recommendations.
- Figure details: Net Errors and Omissions 2010–2016 displayed in Million Euro with axis labels -100, -50, 0, 50, 100, 150, 200, 250, 300 showing Before improvements vs After improvements.

### Top priority recommendations (from Table 2)
- Target Date: June 2018
  - Start compiling IIP and EDS — Responsible: CBM/MOF
  - Estimate euro circulating in Montenegro — Responsible: CBM
  - Estimate remittances brought in cash — Responsible: CBM

### Detailed technical assessment — key actions and target dates
- Outcome: Start compiling IIP and EDS
  - High priority: Start compiling and reporting to the IMF direct investment position data in IIP — Target Date: June 2018
  - High priority: Continue quarterly FDI survey targeting largest DIEs and resident direct investors — Target Date: Ongoing
  - High priority: Start compiling and reporting to the IMF portfolio investment position data in IIP — Target Date: June 2018
  - Medium priority: Adjust information on euro bond issuance to reflect residents’ holdings using ITRS — Target Date: June 2018
  - Medium priority: Incorporate “other changes” in portfolio investment position data to reflect exchange rate and stock index changes; cross-check equity liabilities with CPIS-derived liabilities — Target Date: June 2018
  - Medium priority: Explore expanding coverage of FDI or loan asset/liability survey to collect portfolio position data — Target Date: December 2018
  - High priority: Estimate currency in circulation using currency in circulation/deposits ratio and incorporate in IIP — Target Date: June 2018
  - High priority: Start compiling and reporting other investment position data in IIP — Target Date: June 2018
  - Medium priority: Implement planned trade credit survey and incorporate results in balance of payments — Target Date: December 2018
  - High priority: Start compiling EDS and report to the World Bank — Target Date: June 2018
- Outcome: Start preparation for the RDT
  - Medium priority: Obtain data from MOF, prepare draft RDT, submit for STA review — Target Date: June 2018
- Outcome: Address net errors and omissions
  - High priority: Estimate remittances in cash using the cash/bank transfer ratio and incorporate results in balance of payments — Target Date: June 2018
  - Medium priority: Explore introducing a question on cash/bank transfer ratio in surveys with other agencies — Target Date: December 2018
  - High priority: Start recording reinvested earnings in income and financial accounts — Target Date: June 2018
  - High priority: Start compiling deposits data for other sectors using LBS data, supplemented by Form RN-1 — Target Date: June 2018
  - Medium priority: Keep approaching the MIA and collaborate with other agencies to get comprehensive information on travelers — Target Date: Ongoing
- Outcome: Allocate enough resources and foster expertise
  - High priority: Allocate three additional staff to the Balance of Payments Division — Target Date: December 2018 (Resource Adequacy)
  - High priority: Keep attending training courses for ESS — Target Date: Ongoing

### International Investment Position (IIP) — findings and recommendations

Direct Investment
- CBM conducts annual FDI survey covering 1,600 enterprises; response rate is high (more than 90 percent) due to legal powers for data collection.
- CBM cross-checks survey data with tax authority balance sheet information and ITRS.
- Pilot quarterly FDI survey (Q1 2017) saw response rate drop to around 50 percent; mission advised focusing quarterly survey on largest enterprises while keeping annual frequency for smaller ones.
- Largest 40 enterprises account for around 90 percent of total direct investment liabilities; less than 20 enterprises have direct investment assets.
- CBM plans in 2018 to add questions to capture investment in kind.
- Reinvested earnings for DIEs were negative during 2010 to 2016; reinvested earnings were not recorded in balance of payments due to concern about unusual negative values from a few large DIEs.
- Mission and CBM agreed reinvested earnings should be recorded in income and financial accounts and revise data for 2010 onward, excluding the anomalous negative reinvested earnings for a few large DIEs from the revised balance of payments to reflect real economic activity.
- Investment in real estate is recorded using ITRS and customs information when cash is brought in; CBM adjusts transactions using national land price index.
- Investment in real estate accounts for 16 percent of direct investment liabilities.
Recommendations (Direct Investment):
- Start compiling and reporting to the IMF direct investment position data in IIP (Top priority by June 2018).
- Continue quarterly FDI survey targeting largest DIEs and resident direct investors (High priority, ongoing).
- Start recording reinvested earnings in income and financial accounts in balance of payments (High priority by June 2018).

Portfolio Investment
- General government portfolio liabilities from euro bonds: MOF is source; mission recommended adjusting issuance data with ITRS information to reflect residents’ holdings.
- DTCs portfolio data sourced from MFS.
- Portfolio investment assets for other sectors are sourced from ITRS; position data are estimated by accumulating transaction data and adjusting for exchange rate changes and stock index changes.
- Equity security liabilities: accumulate flow data and adjust using changes in Montenegrin stock index; cross-check with CPIS-derived liabilities.
- Medium term: collect position data directly rather than accumulating transactions.
Recommendations (Portfolio Investment):
- Start compiling and reporting to the IMF portfolio investment position data in IIP (Top priority by June 2018).
- Adjust euro bond issuance information to reflect residents’ holdings using ITRS (Medium priority by June 2018).
- Incorporate “other changes” in portfolio position data for exchange rate and stock index effects and cross-check equity liabilities with CPIS (Medium priority by June 2018).
- Explore expanding FDI or loan asset/liability survey coverage to collect portfolio position data (Medium priority by December 2018).

Table 3 (Data Source for Portfolio Investment Position by Sector) — key points
- General Government liabilities: MOF with adjustment from ITRS information.
- Deposit-taking Corporations: Assets and liabilities from MFS.
- Other Sectors: Accumulation of transaction data from ITRS with adjustments for foreign exchange rates (debt and equity) and stock indices (equity).

Currency in Circulation
- Montenegro fully eurorized; euro circulating in Montenegro should be included in external assets/IIP.
- CBM had difficulty estimating euro circulating, preventing IIP compilation for several years.
- Agreed methodology: apply currency in circulation/deposits ratio from neighboring countries that issue their own currencies to resident deposits in Montenegro; ratios are consistent among neighbors and show a declining trend.
Recommendation:
- Estimate euro circulating in Montenegro using agreed currency in circulation/deposits ratio and incorporate it in the IIP (Top priority by June 2018).

Deposits, Loans, and Trade Credit/Advances
- DTC deposits assets and liabilities sourced from MFS.
- To cover other sectors' transactions at accounts with nonresident banks, CBM identified 50 largest enterprises conducting international transactions from ITRS; these enterprises complete Form RN-1 quarterly to report transactions and positions at accounts abroad.
- CBM is exploring other data sources to capture deposits for enterprises and individuals not submitting Form RN-1.
- Mission suggested using Locational Banking Statistics (LBS) compiled by BIS as source: LBS provides position data and changes in positions during the quarter adjusted by exchange rates, identifying banking vs non-bank sector to record deposits for other sectors.
- Mission provided guidance on obtaining information from BIS website.

### Key numeric facts (preserve exact figures)
- Mission dates: December 4–15, 2017.
- STA’s e-GDDS mission: June 28-July 4, 2017.
- FDI survey coverage: 1,600 enterprises.
- FDI survey response rate: more than 90 percent (annual); around 50 percent (pilot quarterly).
- Largest 40 enterprises account for around 90 percent of total direct investment liabilities.
- Less than 20 enterprises have direct investment assets.
- Investment in real estate: 16 percent of direct investment liabilities.
- Top priority target dates: June 2018 for multiple actions; December 2018 for selected medium-term items.
- Resource allocation target: Allocate three additional staff to Balance of Payments Division — Target Date: December 2018.
- Figure axis labels for Net Errors and Omissions (Million Euro): -100, -50, 0, 50, 100, 150, 200, 250, 300.

*Source: International Monetary Fund — STA mission to Montenegro (December 4–15, 2017).*

### 21.      The LBS data should be supplemented by data collected by Form RN-1 to cover the

### 21.      The LBS data should be supplemented by data collected by Form RN-1 to cover the

### Deposits and Other Investment — Coverage and Sources
- LBS data should be supplemented by data collected by Form RN-1 to cover deposits with nonresident banks that do not report to the LBS.
- The CBM found that about half of the deposits reported by Form RN-1 are with nonresident banks that do not report to the LBS (around 8 million euro as of end-2016).
- The CBM indicated that deposits with nonresident banks that are not covered by the LBS or Form RN-1 (e.g., households’ deposits with Serbian banks) are not significant.
- Data sources listed for other investment items:
  - Deposits: MFS/LBS/Form RN-1 — "The LBS will be used to capture data for other sectors together with the information from Form RN".
  - Currency in circulation / Currency in circulation to deposits ratio: Top priority recommendation (listed in table header).
  - Loans: Forms KO-1 and KZ-1 — "Coverage could be expanded to cover portfolio investment positions".
  - Trade credit/advances: General government: Report from the MOF; Other sectors: New survey.

### Loans — Reporting and Coverage
- Form KO-1 (loan assets) was submitted by 62 enterprises and the total amounted to 35.5 million euro (as of end-2016).
- Form KZ-1 (loan liabilities) was submitted by more than 1,000 enterprises and the total amounted to 2 billion euro (as of end-2016).
- The CBM identifies enterprises using information from the ITRS and requests them to submit the forms.

### Trade Credit/Advances — Planned Survey and Timetable
- The CBM plans to introduce a survey to capture trade credit/advances in 2018.
- Target enterprises will be selected by comparing customs declarations with corresponding payment information from the ITRS; survey forms will be sent to enterprises with large discrepancies between customs declarations and ITRS data.
- If survey results indicate high quality, the CBM plans to start recording trade credit/advances in balance of payments starting in December 2018.

### Key Recommendations for Other Investment and IIP
- Start compiling and reporting to the IMF other investment position data in IIP (top priority by June 2018).
- Start compiling deposits data for other sectors using the LBS data, supplemented by the information from Form RN-1 (high priority by June 2018).
- Implement the planned trade credit survey and incorporate the results in balance of payments (medium priority by December 2018).

### External Debt Statistics (EDS)
- Preparation of IIP covered items required for EDS.
- In cooperation with the MOF, the CBM can compile the core table for e-GDDS participants (Table 1: Public sector debt, Publicly-Guaranteed Private Sector Debt, and Private Sector Debt Not Publicly Guaranteed) and Table 6: Gross External Debt Position by Sector for SDDS subscribers.
- The Head of the CBM’s Balance of Payments Division participated in the EDS training course in Washington DC and agreed procedures with the World Bank to start reporting data.
- Recommendation: Start compiling EDS in cooperation with the MOF and reporting to the World Bank (top priority by June 2018).

### Reserves Data Template (RDT)
- Mission provided guidance on defining, measuring, and recording reserve assets and reserve-related liabilities in the context of an eurorized economy; guidance covered Sections I through IV of the Template for assets and liabilities held by the CBM and MOF.
- CBM does not have deposits with domestic banks to be recorded in Section I.B.
- Scheduled outflows and inflows for euro bonds issued by and loans received by the central government are recorded in Section II.
- Contingent liabilities (guarantees provided by the central government) are recorded in Section III; currency of denomination recorded in Section IV.
- MOF requested time to establish internal procedures to provide detailed information (e.g., maturity of guarantees and debt service schedules) to the CBM monthly.
- Once data are received from the MOF, the CBM plans to prepare a draft RDT and submit it for STA’s review; after review, report to STA monthly and post on the IMF’s website.
- Recommendation: Obtain data from the MOF, prepare a draft RDT, and submit it for STA’s review (medium priority by June 2018).

### Balance of Payments — Net Errors and Omissions; Remittances
- Remittances are recorded using ITRS information covering transactions through banks and money transfer operators, but ITRS does not cover cash brought into Montenegro as remittances.
- Mission proposed estimating remittances brought in cash by applying a cash/bank transfer ratio based on information from neighboring countries; CBM acquired confidential ratios and uses the average of the ratios to estimate cash remittances.
- In the medium term, CBM should collaborate with other agencies to introduce a question on the cash/bank transfer ratio in surveys (e.g., household survey).
- Mission assessed the average ratio as reasonable, given Montenegro is a fully eurorized country and patterns of emigrant behavior and currency exchange.
- CBM incorporated remittances brought in cash, reinvested earnings for direct investment, and deposits for other sectors; after these improvements, net errors and omissions and current account deficit have decreased significantly.
- Planned improvement in the FDI survey should further improve net errors and omissions by including inflows from direct investment in kind.
- Recommendations:
  - Estimate remittances brought in cash using the cash/bank transfer ratio and incorporate the results in balance of payments (top priority by June 2018).
  - In medium term, explore introducing a question on the cash/bank transfer ratio in surveys (e.g., household survey) in collaboration with other agencies (medium priority by December 2018).

### Goods and Services; Travel — Data Sources and Estimation Methods
- Main data source for merchandise trade is foreign trade statistics compiled by MONSTAT; CBM verifies MONSTAT data with ITRS.
- Freight is estimated at 3.03 percent of the c.i.f. price; insurance is considered insignificant given predominant imports from neighboring countries.
- The share of transportation conducted by nonresidents was estimated as 70 percent.
- Travel (credit) calculation:
  - Personal travel: number of overnight stays from MONSTAT’s monthly survey multiplied by average expenditure per day by region; number of overnight stays at unregistered accommodations estimated at 30 percent of stays at hotels and registered accommodations and added to the total.
  - CBM estimates average expenditures of travelers from websites and phone contacts for major hotels and restaurants every three years; NTA, Ministry of Tourism, and Hotel Association provide price information.
  - Health-related, education-related, and business travel data are taken from the ITRS.
- MONSTAT, NTA and CBM requested traveler information from the Ministry of Internal Affairs (MIA), but the MIA’s outdated computer system could not provide needed information for statistical needs.
- Mission suggested continued approaches to MIA so that comprehensive traveler information can be obtained without surveys; MIA data could include nationality and length of stay and help estimate travel (debit) and compensation of employees (credit).
- Recommendation: Keep approaching the MIA collaborating with other agencies to get comprehensive information on travelers (medium priority on an ongoing basis).
- Additional notes:
  - Freight and insurance for imports were estimated based on data collected from largest importers covering around 80 percent of the total imports.
  - The 2005 survey indicated 50 percent of private accommodations were not registered; CBM adjusted the share to 30 percent reflecting the impact of recent government campaign to decrease informal economy.

### Staff Resources in the Balance of Payments Division
- The CBM’s Balance of Payments Division currently consists of seven staff including the head of the division (one staff member is currently studying abroad and will be back in September 2018).
- Two staff are specialized in handling the ITRS.
- Considering workload and international comparisons, mission recommends CBM allocate at least three additional staff to the Division to start producing IIP, EDS, and RDT and conduct quarterly FDI survey.
- Compilation and reconciliation of these position data sets is required to subscribe to the SDDS and sufficient resources should be allocated.
- Compilation of ESS relies on the Division’s expertise, which requires continuous training and experience; staff should keep attending IMF and other international training courses and frequent staff changes should be avoided.
- Recommendations:
  - Allocate three additional staff to the Balance of Payments Division (high priority by December 2018).
  - Keep attending training courses for ESS (high priority on ongoing basis).

*IMF staff report excerpt (Montenegro) contained in the provided content unit.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2018/cr18353.pdf_