The International Monetary Fund (IMF) revised down its forecast for Montenegro’s economic growth this year to 3% from the previously expected 3.3%, mainly due to planned fiscal consolidation measures, which should strengthen the country’s finances and cut its rising debt.

Earlier on September 14, Montenegro’s Prime Minister Dusko Markovic said that the GDP expanded by more than 4% y/y in the first half of 2017.

Podgorica is working hard to cut its spending and improve budget revenue in order to start reducing its significant debt, which is estimated to rise further to 82% by 2019 due to the construction of the Bar-Boljare motorway.

According to the IMF, the GDP growth should slow to 2.8% in 2018. The economy will be driven by the implementation of large investment projects, including the construction of the Bar-Boljare highway.

“[T]he government announced in June 2017 a medium-term fiscal consolidation strategy that, if implemented, would considerably strengthen the fiscal position. Staff estimates that the government’s fiscal measures would raise the primary fiscal surplus to 4½ percent of GDP by 2020, allowing government debt to fall to 66 percent of GDP by 2020,” the IMF said in a statement.

According to the fund, if fully implemented, Montenegro’s plan will put the country’s debt on a strong downward pace.

At the same time, the IMF said that Podgorica can further reduce its spending over the medium term through civil service and pension reforms. The government has been facing strong criticism from the opposition as the fiscal consolidation measures include the reduction of benefits to mothers of three or more children.

Montenegro has been advised to implement structural reforms to boost competitiveness, productivity, and private sector investment.

The IMF also noted that the level of non-performing loans (NPLs) in Montenegro remains high although declining, while banks’ profits remain low. The country should strengthen its supervisory and regulatory frameworks in order to further reduce the NPLs ratio, which stood at 8.2% in July. The IMF also noted that Montenegro’s system is overbanked with 15 banks in a country with population of around 620,000 people, and that consolidation of the system could be beneficial.