Front Matter Page
IMF Country Report No. 19/293
MONTENEGRO
2019 ARTICLE IV CONSULTATION—PRESS RELEASE, STAFF REPORT, AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR MONTENEGRO
September 2019
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2019 Article IV consultation with Montenegro, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its September 6, 2019 consideration of the staff report that concluded the Article IV consultation with Montenegro.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on September 6, 2019 following discussions that ended on June 28, 2019, with the officials of Montenegro on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on August 8, 2019.
An Informational Annex prepared by the IMF staff.
A Statement by the Executive Director for Montenegro.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2019 International Monetary Fund
Front Matter Page
MONTENEGRO
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION
August 8, 2019
Key Issues
Background. The economy has grown strongly since 2015, bolstered by large investments and tourism. While the construction of the first phase of a major highway project has boosted growth, it has also raised government debt. To preserve fiscal sustainability, the authorities embarked on a medium-term adjustment strategy in 2017. The financial sector has been stable and two non-systemic banks were placed into bankruptcy this year.
Outlook and Risks. Growth is expected to moderate toward 3 percent in 2019 and over the medium term as highway construction ends. Government debt is projected to peak in 2019 and decline rapidly thereafter. One crucial risk relates to maintaining healthy primary surpluses and avoiding unsustainable new fiscal costs related to further construction of the highway. Threats to financial stability can only be mitigated by maintained commitment to stronger bank supervision.
Policy Recommendations
Fiscal Policy. A primary fiscal surplus of at least 2 percent of GDP should be maintained over the medium term. Streamlining public employment, reforming the pension system, and eliminating wasteful tax expenditures are key priorities. To safeguard fiscal stability and sustainability, the net benefits of further construction of the highway should first be carefully assessed and then weighed against opportunity costs, whilst remaining mindful of fiscal risks from possible PPP arrangements.
Financial Sector. Efforts to improve banking and Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) supervision are paramount. The emphasis should be a shift to risk-based tools for supervision in both off-site and on-site functions, and the establishment of a stronger supervisory structure within the central bank. A thorough, independent asset quality review of the banking system should be completed no later than end-2020.
Labor Markets. The main priorities are reduction of the labor tax wedge and implementation of the new labor law that aims to increase 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.
Approved By
Jörg Decressin (EUR) and Yan Sun (SPR)
Discussions were held in Podgorica on June 17 – 28, 2019. The team comprised Srikant Seshadri (head), Stephanie Eble, Michelle Hassine, Piotr Kopyrski, William Lindquist, Tonny Lybek (all EUR), A. Antonio Hyman Bouchereau, and Maksym Markevych (both LEG). Mr. Josic (OED) joined most of the meetings. The team met with the authorities (Prime Minister, Central Bank of Montenegro, Ministries of Economy, Finance, Transportation, Labor, and Public Administration), private sector representatives (unions, employers, and banks), the diplomatic community, and international agencies (EC and EBRD). Brett Stewart and Aniko Madaraszova (EUR) provided support from HQ.
Contents
CONTEXT
RECENT DEVELOPMENTS
OUTLOOK AND RISKS
POLICY DISCUSSIONS
A. Fiscal Policies
B. Financial Sector Policies
C. External Competitiveness and Labor Markets
STAFF APPRAISAL
BOXES
1. Bar-Boljare Highway Project
2. Remittances in Montenegro
FIGURES
1. Real Sector Developments
2. Fiscal Developments
3. Tourism Developments
4. Expenditure Efficiency
5. Fiscal Scenarios for Highway Completion
6. Credit Developments
7. Banking Sector Developments
8. Labor Markets
9. Business Environment
TABLES
1. Staff Assessment of Fiscal Adjustment Factors
2. Selected Economic Indicators, 2014–2024
3. Savings and Investment Balances, 2014–2024
4. Contribution to Real Gross Domestic Product, 2014–2024
5. Consolidated General Government Fiscal Operations, 2014–2024 (Millions of euro, GFSM 2014)
6. Consolidated General Government Fiscal Operations, 2014–2024 (Percent of GDP, GFSM 2014)
7. Consolidated General Government Fiscal Operations, 2014–2024 (Millions of euro)
8. Consolidated General Government Fiscal Operations, 2014–2024 (Percent of GDP)
9. Summary of Accounts of the Financial System, 2014–2019
10. Balance of Payments, 2014–2024
11. Financial Soundness Indicators of the Banking Sector, 2012–2019
ANNEXES
I. Risk Assessment Matrix
II. Public Debt Sustainability Analysis
III. External Debt Sustainability Analysis
IV. External Sector Assessment
V. Implementation of Past IMF Recommendations
VI. Implementation of 2015 FSAP Recommendations
VII. Public-Private Partnerships Framework Assessment
VIII. Montenegro’s Government Wage Bill
IX. Recommendations to Strengthen AML/CFT Supervision
Front Matter Page
MONTENEGRO
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
August 8, 2019
Prepared By
The European Department (In Consultation with Other Departments)
Contents
FUND RELATIONS
RELATIONS WITH OTHER INTERNATIONAL FINANCIAL INSTITUTIONS
STATISTICAL ISSUES
Front Matter Page
Press Release No. 19/329
FOR IMMEDIATE RELEASE
September 10, 2019
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