IMF Executive Board Concludes 2024 Article IV Consultation with Montenegro
IMF News, May 3, 2024
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- Published: May 3, 2024
Economic growth and inflation
- Real GDP growth: 6 percent in 2023; expected 3.7 percent in 2024; about 3 percent over the medium term.
- Drivers of 2023 growth:
- Strong consumption.
- Tourism revenues exceeded pre-pandemic levels.
- Influx of relatively affluent Russian and Ukrainian nationals due to Russia’s war in Ukraine.
- Labor market: Unemployment rate has fallen to an all-time low (Unemployment: 13.1 percent in 2023).
- Inflation:
- Inflation (avg): 8.6 percent in 2023; 4.2 percent in 2024; 2.7 percent in 2025.
- Inflation (eop): 4.3 percent in 2023; 2.1 percent in 2024.
- Inflation has come down significantly from its peak in 2022, aided by easing international food prices.
- Differential with Euro Area inflation currently at 1.7 percentage points is expected to narrow further, barring fresh commodity shocks and sizable policy-induced domestic wage increases.
External sector
- Current account deficit expected to return to historical average levels of about 13.5 percent of GDP.
- Current account (% GDP): -11.4 in 2023; -12.4 in 2024; -13.5 in 2025.
- Foreign direct investment (% GDP): 6.3 in 2023; 8.5 in 2024; 9.3 in 2025.
Fiscal position and public debt
- Public debt:
- Peaked at 107 percent of GDP in 2020.
- Fell to an estimated 61.5 percent of GDP in 2023.
- Projected to slowly increase to about 66 percent of GDP by 2029 under current policies.
- 2023 fiscal outturn:
- General government budget recorded a surplus in 2023 due to strong VAT revenues, one-off increases in nontax revenues, and lower than planned spending.
- 2024 budget:
- Envisages a weakening in the fiscal position, mostly due to increases in social security transfers and waning of one-off effects.
- Partially offset by measures to increase VAT and excise revenues, as well as fees from games of chance.
- Fiscal projections and risks:
- Under current policies, expenditure growth, driven in part by social spending, is expected to exceed revenue growth; interest costs likely to remain higher than in the past.
- The recent improvement could be jeopardized if electoral promises to significantly increase net wages by partially or fully eliminating pension contributions were enacted.
- Key fiscal indicators (percent of GDP):
- Revenue: 41.8 in 2023; 41.0 in 2024; 40.5 in 2025.
- Expenditure: 41.1 in 2023; 44.2 in 2024; 44.0 in 2025.
- Overall fiscal balance: 0.7 in 2023; -3.2 in 2024; -3.5 in 2025.
- Primary fiscal balance: 2.6 in 2023; -1.4 in 2024; -1.5 in 2025.
- General government debt: 61.5 in 2023; 62.3 in 2024; 61.4 in 2025.
- General government debt net of deposits: 59.1 in 2023; 58.0 in 2024; 58.2 in 2025.
Banking sector and financial stability
- Banking system performance:
- NPL ratio continues to fall despite withdrawal of COVID support measures (Non-performing loans: 5.0 percent of total loans in 2023).
- Average capital adequacy is nearly twice the regulatory minimum.
- Record-high deposit growth has resulted in ample liquidity.
- Loan-to-deposit ratio has fallen because deposit growth outpaced private sector credit growth.
- Bank profitability at record levels due to widening net interest margins.
- Policy implications:
- Importance of proactively addressing any pockets of weakness.
- Strong reiteration of support for operational independence of the central bank.
- Encouragement to fully implement reforms recommended by the 2021 safeguards assessment.
- Continued alignment of regulation and supervision with international standards and updating supervision capacities to cover risks from housing markets, banks’ exposures to foreign securities, crypto assets, digitalization and other fintech initiatives.
- Continued strengthening of the AML/CFT framework, building on the 2023 MONEYVAL recommendations.
Executive Board assessment and policy recommendations
- Directors welcomed the strong post-COVID economic rebound and the significant improvement in the fiscal position.
- Concerns and outlook:
- Growth expected to slow; renewed fiscal pressures and large financing needs noted.
- Under current policies fiscal deficits projected to re-emerge from 2024 onward, with debt on a gradual upward path.
- Fiscal policy recommendations:
- Credible adjustment measures needed to anchor debt to the 60 percent of GDP threshold in the medium to long run, in line with Montenegro’s Law on Budget and Fiscal Sustainability.
- Maintaining a non-negative primary balance will help keep debt below 60 percent of GDP.
- Finalize Fiscal Strategy and implement a new medium term debt management strategy in 2024.
- Structural fiscal reforms: strengthen revenue administration; improve targeting of social spending; contain growth of the public wage bill; improve oversight of SOEs.
- Financial sector recommendations:
- Further strengthen financial sector supervision.
- Support operational independence of the central bank and implement safeguards assessment reforms.
- Structural and growth recommendations:
- Diversify the economy both within and away from the tourism sector.
- Exploit Montenegro’s strong potential in renewable energy for diversification.
- Increase labor force participation of women to yield significant economic dividends.
- Fund support: Encourage use of Fund capacity development where appropriate.
Other procedural notes
- The next Article IV consultation with Montenegro is expected to be held on the standard 12-month cycle.
- Money and credit indicators:
- Credit to the private sector (% change): 6.9 in 2023; 5.6 in 2024; 5.5 in 2025.
IMF Press Release No. 24/138 — IMF Executive Board Concludes 2024 Article IV Consultation with Montenegro (May 3, 2024).