Montenegrin government to commit to debt reduction

The Montenegrin Government must show its commitment to debt reduction, the World Bank (WB) announced, adding that political instability and complexity are the main domestic risks.
The seriousness of the challenges, however, requires strong political commitment and actions to mitigate these risks - according to the regular economic report of the SB for the Western Balkans, which was published at the end of last month.
In that document, in a special section for Montenegro, it was stated that the unfavorable global economic outlook and high domestic uncertainty weigh on the otherwise positive prospects of Montenegro.
During 2023-2025, it is predicted that the growth will amount to 3.1 percent on average, because the growth of private consumption is slowing down, while investments are expected to make a marginally positive contribution to growth - the document states.
Tourism is likely to continue to recover this year, to reach 2019 levels, although a deterioration in the growth outlook in the European Union (EU) and the region may have a negative effect on both tourism and the broader growth outlook.
It is predicted that inflation will slow down to 7.9 percent this year and four percent next year. Although higher energy prices disproportionately affect the poor, they also support Montenegro's electricity exports, supported by an increase in production capacity in the medium term.
It is predicted that these factors, together with the export of tourist and transport services and solid remittances, will support a modest reduction of the current account deficit to 11.1 percent of the gross domestic product (GDP) by 2025 - according to the SB.
Although the fiscal deficit is expected to decrease in the medium term, it will remain elevated.
Given higher spending on wages and social and capital spending, the fiscal deficit will remain high at 4.9 percent of GDP this year, before gradually reducing to 4.2 percent next year, unless additional measures are taken. measures on the revenue and/or expenditure side, such as recent excise duty increases.
As a result, as estimated by the SB, public debt is expected to remain high at around 70 percent of GDP during 2023-2025.
Bearing in mind the tightening of global financial conditions, Montenegro's significant financial needs of about ten percent of GDP this year and the need to pay off three large Eurobonds maturing in the period from 2025 to 2029, starting with the Eurobond of EUR 500 million in 2025 , the Government must show commitment to the path of debt reduction - said the SB.
This requires careful weighing of the costs and benefits of any new spending policy and coordination of activities to increase tax discipline, broaden the tax base and reduce the shadow economy.
The prospects, as announced by the SB, are clouded by multiple negative risks.
High geopolitical uncertainties resulting from the Russian invasion of Ukraine and global inflation may weaken the growth prospects of Montenegro's main trading partners. Risk premiums are rising for most borrowers, and the appetite for absorbing credit risk is diminishing. These conditions can lead to greater difficulties in mobilizing large amounts of capital on favorable terms, especially if the fiscal goals are not strengthened by fiscal prudence - the document concludes.
POBJEDA