IMF Completes Staff Visit to Montenegro

IMF News, July 28, 2022

Source details

Mission led by Mr. Srikant Seshadri conducted a staff visit to Montenegro from July 18-27, 2022.
End-of-Mission press release issued July 28, 2022. The views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
The mission held discussions with Prime Minister Mr. Dritan Abazović, Minister of Finance Mr. Aleksandar Damjanović, Governor of the Central Bank of Montenegro Mr. Radoje Zugić, government and central bank officials, regulatory agencies, and representatives from the private sector.
The IMF looks forward to the 2022 Article IV Consultation, later this year.

The war in Ukraine is casting a long shadow over the global economic and financial outlook.
This year’s challenging environment could worsen further next year due to deteriorating growth prospects in Europe, the US, and Asia.
Global financial conditions are likely to remain tight.
Credit spreads on emerging country debt have climbed significantly higher along with global interest rates.
It is a distinct possibility that access to international credit might even be sharply curtailed next year.
Strong advance preparation would serve Montenegro well.

First quarter growth this year in Montenegro was strong at 7.2 percent (y-o-y).
Available information suggests private consumption has remained strong during the second quarter.
The strength of this year’s summer tourist season depends on whether lower arrivals from Russia and Ukraine will be balanced by higher arrivals from elsewhere.
Montenegro’s natural endowments in renewable energy have not shielded it from global inflationary pressures, as food, fertilizer, gasoline, and construction materials prices have soared.
IMF staff is of the view that inflation is not completely “imported”. Rising wage pressures due to the recent minimum wage increase and tax reforms also appear to be playing a role.

In the context of relatively high public debt, fiscal policy needs to remain nimble. There are three keys to strong preparation for possibly increased turbulence:
- First, the state’s revenues must be safeguarded. While tax cuts and other support measures aimed at protecting the population from rising prices are understandable, they should be targeted towards the most vulnerable in society, with a clear view that they will remain in place only so long as they have served their purposes.
- Second, against a backdrop of already high levels of public debt, this is a particularly inopportune time to saddle the state with large permanent increases in current expenditures, or with capital expenditures whose longer-term economic returns are uncertain. Given the difficult global conditions, it would be wise to signal much stronger expenditure control now, to prevent unnecessary future economic hardship.
- Third, to meet financing needs when global conditions are tight, the state needs the flexibility to consider all possible sources not only for this year, but also further ahead. It should also be recognized by all stakeholders in society that the cost of funds is likely to remain high, relative to the last few years.

The banking system is well capitalized and liquid.
Last year’s strong economic recovery, combined with forward-looking efforts by the Central Bank of Montenegro Council (CBCG) to align the legal and regulatory environment with global standards are paying strong dividends.
Capital adequacy, liquidity, and asset quality indicators for the system remain strong, allowing lending this year to continue to grow to both the corporate and household sectors, despite growing economic headwinds.
The IMF strongly supports the central bank’s efforts to modernize the country’s payment systems as part of its broader efforts to enhance integration with the EU.
Continued strong supervisory vigilance is essential as global risks continue to rise:
- Housing prices are rising sharply. Although this appears to be largely driven by foreign purchases, it will be important to guard against signs of excessive domestic leverage.
- Pockets of weakness in the banking system could emerge, particularly if growth slows sharply in the coming period.
- Contingency planning takes on greater significance, to mitigate the risk of disruptions in such an environment. This includes maintaining close relationships and information exchange with the home country supervisors of foreign financial institutions.
- Efforts to strengthen the Anti Money Laundering and Combating of the Financing of Terrorism (AML/CFT) framework, alongside effective risk-based implementation require continuing attention.

The IMF has been providing candid assessments and advice on the authorities’ budgetary plans, as well as technical assistance in tax and expenditure policies, public financial management, and debt management.
The IMF has also actively been providing advice and technical assistance to the authorities in a broad range of areas pertaining to the financial sector from supervision, to fintech, as well as AML/CFT.
The IMF is—and will remain—a strong partner of Montenegro and looks forward to continuing cooperation in all these areas.

Press Release No. 22/277, July 28, 2022.

Završena je posjeta zaposlenih MMF-a Crnoj Gori
- Završena je posjeta zaposlenih MMF-a Crnoj Gori (Markdown version)
- Završena je posjeta zaposlenih MMF-a Crnoj Gori (PDF)