{
  "title": "IMF Executive Board Concludes 2021 Article IV Consultation with Montenegro",
  "publication": "IMF News, February 24, 2022",
  "sourceUrl": "https://www.imf.org/en/news/articles/2022/02/23/pr2249-imf-executive-board-concludes-2021-article-iv-consultation-with-montenegro",
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  "summary": "The Montenegrin economy was hit hard by COVID-19, with significant human and economic costs amplified by strong tourism dependence, constrained fiscal space, and labor market rigidities.",
  "publishDate": "2022-02-24",
  "sections": [
    {
      "heading": "Economic impact and recovery",
      "content": "- The Montenegrin economy was hit hard by COVID-19, with significant human and economic costs amplified by strong tourism dependence, constrained fiscal space, and labor market rigidities.\n- Authorities’ pandemic support measures included wage subsidies, tax deferrals, financial assistance to the vulnerable, and loan moratoria; these helped contain economic effects.\n- Growth rebound expected:\n  - 2021: 12 percent\n  - 2022: 6 percent\n- Medium-term growth projection: around 3 percent."
    },
    {
      "heading": "Financial sector assessment",
      "content": "- Headline banking system metrics indicate resilience and the sector appears to have withstood the COVID-19 shock well.\n- Concern: possible hidden deterioration in asset quality masked by forbearance measures.\n- Most crisis support measures introduced by the Central Bank in 2020 have been withdrawn over the past months.\n- Central Bank completed an independent asset quality review using data as of end-2019, indicating the banking sector was generally in a solid position at the onset of the pandemic.\n- Directors’ recommendations and observations:\n  - Gradual withdrawal of remaining support measures as the economy recovers.\n  - Vigilance for emerging risks, including a possible rise in NPLs.\n  - Continue implementation of FSAP recommendations.\n  - Strengthen bank supervision and resolution frameworks.\n  - Reinforce the AML/CFT framework to help align regulation and supervision with EU frameworks."
    },
    {
      "heading": "Growth, external position, and drivers",
      "content": "- Recovery driven primarily by the normalization of tourism.\n- Current account expected to revert to the pre-pandemic average as tourism normalizes.\n- External risks noted: pandemic resurgence could stymie tourism recovery; geopolitical tensions could place sustained upward pressure on energy prices and risk premia."
    },
    {
      "heading": "Fiscal situation and 'Europe Now' reform program",
      "content": "- Public debt was elevated prior to the pandemic in part due to the Bar-Boljare highway project; the pandemic caused a further increase in public debt levels.\n- Authorities passed the ‘Europe Now’ reform program beginning in 2022 with aims to arrest outward migration through measures including:\n  - Near doubling of the net minimum wage.\n  - Substantial reduction in the labor tax wedge.\n  - Introduction of a progressive tax code.\n- Fiscal implications and concerns:\n  - Reductions in revenue from the removal of healthcare contributions in ‘Europe Now’ and increases in some long-term spending commitments are currently projected to keep the fiscal deficit and public debt elevated absent effective offsetting measures.\n  - Effects of reforms on inflation and formal employment are uncertain and depend on the extent to which higher formal wages are absorbed by a commensurate fall in ‘grey wages’, which are likely to be variable across regions and sectors."
    },
    {
      "heading": "Risks, uncertainty, and scenarios",
      "content": "- Uncertainty surrounding projections is exceptionally high.\n- Upside scenario drivers:\n  - Medium-term growth could be higher if labor and capital reallocate promptly to viable firms and sectors.\n  - Reduction in the labor tax wedge could attract significant new investment.\n- Downside scenario drivers:\n  - Pandemic negative surprises that hinder tourism recovery.\n  - Geopolitical tensions raising energy prices and risk premia.\n- Reforms related to ‘Europe Now’ expected to provide a short-term growth boost, but inflation and formal employment outcomes remain uncertain."
    },
    {
      "heading": "Executive Board assessment and policy recommendations",
      "content": "- Directors commended the authorities’ targeted pandemic response and welcomed the strong economic rebound with the pick-up in tourism.\n- Directors cautioned that downside risks from pandemic resurgence, persistent inflationary pressures, tightening global financial conditions, and political uncertainty warrant vigilance and contingency planning.\n- Fiscal policy guidance:\n  - Continue targeted pandemic-related spending in the near term.\n  - Commit to a credible and ambitious medium-term fiscal consolidation to preserve fiscal and debt sustainability.\n  - Aim for a primary surplus of about 1 percent of GDP over the medium-term through a combination of revenue and expenditure measures to place debt on a downward path.\n  - Implement initially proposed revenue-raising measures to enable fiscal recalibration alongside ‘Europe Now’.\n- Structural and fiscal governance reforms:\n  - Enhance efficiency of revenue administration agencies.\n  - Adopt a new Public Administration Reform strategy.\n  - Enhance public investment management and exercise caution in the use of PPPs.\n  - Consider large capital expenditures only once adequate fiscal space exists.\n  - Strengthen oversight and transparency of SOEs and establish institutional and legal frameworks for “Montenegro Works”.\n- Financial sector reforms:\n  - Continue implementing FSAP recommendations.\n  - Strengthen bank supervision and resolution frameworks.\n  - Reinforce the AML/CFT framework.\n- It is expected that the next Article IV consultation with Montenegro will be held on the standard 12-month cycle."
    },
    {
      "heading": "Selected economic indicators (2017–2022)",
      "content": "- Output\n  - Real GDP growth (%): 2017: 4.7; 2018: 5.1; 2019: 4.1; 2020: -15.3; 2021 Est.: 12.0; 2022 Proj.: 6.0\n- Employment\n  - Unemployment (%): 2017: 17.0; 2018: 15.2; 2019: 15.1; 2020: 17.9; 2021: -- \n- Prices\n  - Inflation (avg, %): 2017: 2.4; 2018: 2.6; 2019: 0.4; 2020: -0.2; 2021: (not reported)\n- General government finances\n  - Revenue (% GDP): 2017: 40.3; 2018: 41.0; 2019: 42.2; 2020: 43.4; 2021: 43.0; 2022: 38.8\n  - Expenditure (% GDP): 2017: 47.1; 2018: 47.2; 2019: 44.0; 2020: 54.4; 2021: 45.0; 2022: 44.9\n  - Overall fiscal balance (% GDP): 2017: -6.8; 2018: -6.2; 2019: -1.8; 2020: -10.9; 2021: -2.0; 2022: -6.1\n  - Primary fiscal balance (% GDP): 2017: -4.4; 2018: -4.0; 2019: -8.2; 2020: 0.5; 2021: -4.2\n  - General government debt (% GDP): 2017: 66.2; 2018: 71.9; 2019: 78.8; 2020: 107.3; 2021: 88.2; 2022: 79.4\n  - Gen. govt. debt including guarantees (% GDP): 2017: 73.5; 2018: 78.1; 2019: 83.7; 2020: 112.6; 2021: 92.2; 2022: 83.0\n- Money and credit\n  - Credit to the private sector (% change): 2017: 8.4; 2018: 11.0; 2019: 5.0; 2020: 3.4; 2021: 5.4; 2022: 8.1\n  - Non-performing loans (% of total loans): 2017: 7.3; 2018: 6.7; 2019: 5.5\n- Balance of payments\n  - Current account (% GDP): 2017: -16.1; 2018: -17.0; 2019: -14.3; 2020: -26.0; 2021: -15.7; 2022: -15.0\n  - Foreign direct investment (% GDP): 2017: 11.3; 2018: 6.9; 2019: 6.2; 2020: 11.2; 2021: 7.9; 2022: 7.5\n  - Reserves (months of imports): 2017: 4.0; 2018: 8.2; 2019: 3.7\n- Exchange rate\n  - REER (% change): 2017: 2.7; 2018: -1.5; 2019: -0.6\n\nSource: IMF Executive Board Concluding Statement, \"IMF Executive Board Concludes 2021 Article IV Consultation with Montenegro\", February 24, 2022.\n\n---\n\n\n References\n\n- Montenegro and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- http://www.IMF.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2022/02/23/pr2249-imf-executive-board-concludes-2021-article-iv-consultation-with-montenegro"
    }
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    "Published: February 24, 2022",
    "The Montenegrin economy was hit hard by COVID-19, with significant human and economic costs amplified by strong tourism dependence, constrained fiscal space, and labor market rigidities.",
    "Authorities’ pandemic support measures included wage subsidies, tax deferrals, financial assistance to the vulnerable, and loan moratoria; these helped contain economic effects.",
    "Growth rebound expected:",
    "Medium-term growth projection: around 3 percent.",
    "Headline banking system metrics indicate resilience and the sector appears to have withstood the COVID-19 shock well.",
    "Concern: possible hidden deterioration in asset quality masked by forbearance measures.",
    "Most crisis support measures introduced by the Central Bank in 2020 have been withdrawn over the past months.",
    "Central Bank completed an independent asset quality review using data as of end-2019, indicating the banking sector was generally in a solid position at the onset of the pandemic.",
    "Directors’ recommendations and observations:",
    "Recovery driven primarily by the normalization of tourism.",
    "Current account expected to revert to the pre-pandemic average as tourism normalizes.",
    "External risks noted: pandemic resurgence could stymie tourism recovery; geopolitical tensions could place sustained upward pressure on energy prices and risk premia.",
    "Public debt was elevated prior to the pandemic in part due to the Bar-Boljare highway project; the pandemic caused a further increase in public debt levels.",
    "Authorities passed the ‘Europe Now’ reform program beginning in 2022 with aims to arrest outward migration through measures including:",
    "Fiscal implications and concerns:",
    "Uncertainty surrounding projections is exceptionally high.",
    "Upside scenario drivers:",
    "Downside scenario drivers:",
    "Reforms related to ‘Europe Now’ expected to provide a short-term growth boost, but inflation and formal employment outcomes remain uncertain.",
    "Directors commended the authorities’ targeted pandemic response and welcomed the strong economic rebound with the pick-up in tourism.",
    "Directors cautioned that downside risks from pandemic resurgence, persistent inflationary pressures, tightening global financial conditions, and political uncertainty warrant vigilance and contingency planning.",
    "Fiscal policy guidance:",
    "Structural and fiscal governance reforms:",
    "Financial sector reforms:",
    "It is expected that the next Article IV consultation with Montenegro will be held on the standard 12-month cycle.",
    "Output",
    "Employment",
    "Prices",
    "General government finances",
    "Money and credit",
    "Balance of payments",
    "Exchange rate",
    "[Montenegro and the IMF](http://www.imf.org/external/country/MNE/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[http://www.IMF.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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