## Montenegro: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Montenegro

_IMF Staff Country Reports, September 10, 2019_

## Source details

**Canonical URL:** [Montenegro: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Montenegro](https://www.imf.org/en/publications/cr/issues/2019/09/09/montenegro-2019-article-iv-consultation-press-release-staff-report-and-statement-by-the-48667)

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## Bibliographic details
- Published: September 10, 2019
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781513513720.002

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### Key findings
- Implementation of large publicly financed infrastructure projects has added economic growth.
- The use of fiscal resources accompanying these projects contributed to a large increase in government debt including guarantees, which reached 79 percent of gross domestic product in 2018.
- Despite a recent intervention in two non-systemic domestic banks, the overall banking sector exhibits:
  - improving asset quality,
  - strong credit growth,
  - high liquidity,
  - and is well capitalized.
- Efforts to improve banking and Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) supervision are paramount.
- Main labor-market priorities are reduction of the labor tax wedge and implementation of the new labor law aimed at increasing labor market flexibility.
- Future decisions on the minimum wage should consider a broad set of indicators and require careful analyses of the impact of past increases.

### Banking sector analysis
- Recent intervention: two non-systemic domestic banks underwent intervention (no systemic banking crisis reported).
- Sector-wide indicators:
  - asset quality: improving,
  - credit growth: strong,
  - liquidity: high,
  - capitalization: well capitalized.
- Supervisory needs:
  - shift to risk-based tools for supervision in both off-site and on-site functions,
  - establishment of a stronger supervisory structure within the central bank.
- AML/CFT supervision: elevated priority alongside banking supervision improvements.

### Fiscal position and public debt
- Public debt trajectory driven by large publicly financed infrastructure projects funded by fiscal resources.
- Government debt including guarantees: 79 percent of gross domestic product in 2018.
- Policy implication: fiscal consolidation and careful management of guarantees and contingent liabilities implied as needed to address elevated debt levels.

### Labor market and wages
- Priority reforms:
  - reduction of the labor tax wedge,
  - implementation of the new labor law designed to increase labor market flexibility.
- Minimum wage policy:
  - future decisions should be based on a broad set of indicators,
  - careful analysis of the impact of past minimum wage increases is required.

### Policy recommendations (summarized)
- Strengthen banking supervision by:
  - adopting a risk-based supervisory framework for off-site and on-site activities,
  - reinforcing the supervisory structure within the central bank.
- Prioritize improvements in AML/CFT supervision.
- Implement labor-market reforms to reduce the labor tax wedge and enact the new labor law to enhance flexibility.
- Approach minimum wage adjustments cautiously, informed by comprehensive indicators and retrospective impact analyses.
- Address fiscal risks from large publicly financed infrastructure projects to stabilize and reduce government debt and guarantees.

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_Source: https://www.imf.org/en/publications/cr/issues/2019/09/09/montenegro-2019-article-iv-consultation-press-release-staff-report-and-statement-by-the-48667_