## IMF Executive Board Concludes 2021 Article IV Consultation with Montenegro _IMF News, February 24, 2022_ ## Source details **Canonical URL:** [IMF Executive Board Concludes 2021 Article IV Consultation with Montenegro](https://www.imf.org/en/news/articles/2022/02/23/pr2249-imf-executive-board-concludes-2021-article-iv-consultation-with-montenegro) ## Other formats - [Markdown version](/en/news/articles/2022/02/23/pr2249-imf-executive-board-concludes-2021-article-iv-consultation-with-montenegro/index.md) - [Structured JSON version](/en/news/articles/2022/02/23/pr2249-imf-executive-board-concludes-2021-article-iv-consultation-with-montenegro/index.json) - [Bundle manifest](/en/news/articles/2022/02/23/pr2249-imf-executive-board-concludes-2021-article-iv-consultation-with-montenegro/bundle-manifest.json) ## Bibliographic details - Published: February 24, 2022 --- ### Economic impact and recovery - 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: - 2021: 12 percent - 2022: 6 percent - Medium-term growth projection: around 3 percent. ### Financial sector assessment - 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 - Most crisis support measures introduced by the Central Bank in 2020 have been withdrawn over the past months.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: - Gradual withdrawal of remaining support measures as the economy recovers. - Vigilance for emerging risks, including a possible rise in NPLs. - Continue implementation of FSAP recommendations. - Strengthen bank supervision and resolution frameworks. - Reinforce the AML/CFT framework to help align regulation and supervision with EU frameworks. ### Growth, external position, and drivers - 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. ### Fiscal situation and 'Europe Now' reform program - 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: - Near doubling of the net minimum wage. - Substantial reduction in the labor tax wedge. - Introduction of a progressive tax code. - Fiscal implications and concerns: - 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. - 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. ### Risks, uncertainty, and scenarios - Uncertainty surrounding projections is exceptionally high. - Upside scenario drivers: - Medium-term growth could be higher if labor and capital reallocate promptly to viable firms and sectors. - Reduction in the labor tax wedge could attract significant new investment. - Downside scenario drivers: - Pandemic negative surprises that hinder tourism recovery. - Geopolitical tensions raising energy prices and risk premia. - Reforms related to ‘Europe Now’ expected to provide a short-term growth boost, but inflation and formal employment outcomes remain uncertain. ### Executive Board assessment and policy recommendations - 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: - Continue targeted pandemic-related spending in the near term. - Commit to a credible and ambitious medium-term fiscal consolidation to preserve fiscal and debt sustainability. - 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. - Implement initially proposed revenue-raising measures to enable fiscal recalibration alongside ‘Europe Now’. - Structural and fiscal governance reforms: - Enhance efficiency of revenue administration agencies. - Adopt a new Public Administration Reform strategy. - Enhance public investment management and exercise caution in the use of PPPs. - Consider large capital expenditures only once adequate fiscal space exists. - Strengthen oversight and transparency of SOEs and establish institutional and legal frameworks for “Montenegro Works”. - Financial sector reforms: - Continue implementing FSAP recommendations. - Strengthen bank supervision and resolution frameworks. - Reinforce the AML/CFT framework. - It is expected that the next Article IV consultation with Montenegro will be held on the standard 12-month cycle. ### Selected economic indicators (2017–2022) - Output - Real GDP growth (%): 2017: 4.7; 2018: 5.1; 2019: 4.1; 2020: -15.3; 2021 Est.: 12.0; 2022 Proj.: 6.0 - Employment - Unemployment (%): 2017: 17.0; 2018: 15.2; 2019: 15.1; 2020: 17.9; 2021: -- - Prices - Inflation (avg, %): 2017: 2.4; 2018: 2.6; 2019: 0.4; 2020: -0.2; 2021: (not reported) - General government finances - Revenue (% GDP): 2017: 40.3; 2018: 41.0; 2019: 42.2; 2020: 43.4; 2021: 43.0; 2022: 38.8 - Expenditure (% GDP): 2017: 47.1; 2018: 47.2; 2019: 44.0; 2020: 54.4; 2021: 45.0; 2022: 44.9 - Overall fiscal balance (% GDP): 2017: -6.8; 2018: -6.2; 2019: -1.8; 2020: -10.9; 2021: -2.0; 2022: -6.1 - Primary fiscal balance (% GDP): 2017: -4.4; 2018: -4.0; 2019: -8.2; 2020: 0.5; 2021: -4.2 - General government debt (% GDP): 2017: 66.2; 2018: 71.9; 2019: 78.8; 2020: 107.3; 2021: 88.2; 2022: 79.4 - Gen. govt. debt including guarantees (% GDP): 2017: 73.5; 2018: 78.1; 2019: 83.7; 2020: 112.6; 2021: 92.2; 2022: 83.0 - Money and credit - Credit to the private sector (% change): 2017: 8.4; 2018: 11.0; 2019: 5.0; 2020: 3.4; 2021: 5.4; 2022: 8.1 - Non-performing loans (% of total loans): 2017: 7.3; 2018: 6.7; 2019: 5.5 - Balance of payments - Current account (% GDP): 2017: -16.1; 2018: -17.0; 2019: -14.3; 2020: -26.0; 2021: -15.7; 2022: -15.0 - Foreign direct investment (% GDP): 2017: 11.3; 2018: 6.9; 2019: 6.2; 2020: 11.2; 2021: 7.9; 2022: 7.5 - Reserves (months of imports): 2017: 4.0; 2018: 8.2; 2019: 3.7 - Exchange rate - REER (% change): 2017: 2.7; 2018: -1.5; 2019: -0.6 *Source: IMF Executive Board Concluding Statement, "IMF Executive Board Concludes 2021 Article IV Consultation with Montenegro", February 24, 2022.* --- ## References - [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) _Source: https://www.imf.org/en/news/articles/2022/02/23/pr2249-imf-executive-board-concludes-2021-article-iv-consultation-with-montenegro_