IMF lifts Montenegro's 2013 GDP growth forecast to 1.5% from 1.2% - table

By bne IntelliNews August 29, 2013

The IMF has raised its forecast for this year's economic growth in Montenegro to 1.5% from a previous 1.2% made in April, according to an Aug 28 statement issued following the Fund's Article IV consultations with the local authorities.

The IMF notes that the economic activity picked up in early 2013, with GDP up 4.3% y/y in Q1, thanks to the more favourable weather conditions and the subsequent sharp increase in hydropower production - after the output contracted in 2012 due to the severe winter and the decline in aluminium firm KAP's production.

The metals sector will, however, continue to drag down the overall economic activity this year as well, especially considering the fact that debt-ridden KAP entered insolvency in early July, the IMF warns. It points out to the significant potential Montenegro has in energy and tourism, adding it could be unlocked via better business climate that would attract greater inflows of foreign investment into these sectors.

The IMF sees the main risk for the Montenegrin economy in the loss of access to global debt markets, considering the recent surge in global risk aversion. In case the planned international bond issue for 2013 does not move forward, Montenegro will be forced to take more expensive bank loans to finance its budget spending - and this would put further upward pressure on interest costs.

"Montenegro has found it very difficult to access external capital markets during several periods over the past 18 months. Eurobond spreads are currently at roughly 520 basis points, but were between 800–1000 basis points for most of 2012. This risk is likely to remain over the medium term as well," the Fund said.

Another substantial risk is related to the possible future government commitment to provide fiscal support to KAP since this would weaken the authorities' ability to deliver the necessary mid-term fiscal adjustments and build up the financing pressures.

"The company is not viable at market  electricity prices, however, and has heavy indebtedness, over employment and large investment needs. Any investor is likely to demand financial assistance to deal with these obstacles," the IMF said.

According to the IMF, moving KAP toward liquidation appears to be the least cost option. Yet, the fiscal support seems inevitable if the company is to operate profitably in its current structure. Still, in times when the government is forced to hike taxes and curb spending, KAP's liquidation (even though costly in the near term) could free the budget from continuous subsidies and let valuable financing resources be employed more productively, including electricity for exports.

The Fund, furthermore, points that the growing financing gap in the pension fund has cramped the fiscal space, and serious front-loaded reforms are needed in this area to allow savings for 2014 and beyond, including, to meet fiscal contingencies.

Another problem in the economy is the enduring high volume of bad loans. The NPL ratio climbed again to 17.6% at end-2012 from 15.5% at end-2011 when it had considerably weakened from its peak of 25.3% reached in mid-2011.

Even though commercial banks sold their non-performing loans to factoring companies, these assets remain mostly unresolved and unrestructured, leaving private balance sheets still impaired. Thus, sluggish private sector demand is contributing to weak economic activity and a further deterioration of asset quality - and as a result, new bank lending remains limited, despite a steady recovery in deposits.

  2011 2012 2013 proj. 2014 proj.
real GDP 3.2 -0.5 1.5 2.2
CPI avg. 3.1 3.6 3.4 2.9
CPI end-year 2.8 5.1 3.3 2.3
fiscal balance (%/GDP) -5.2 -4.3 -2.3 -3.2
general govt gross debt (%/GDP) 46.0 51.9 55.3 54.1
general govt debt, incl. loan guarantees 57.8 62.9 65.0 62.7
C/A balance (%/GDP) -17.7 -17.9 -16.9 -16.4
FDI (%/GDP) 12.0 14.1 14.6 15.2
external debt stock (%/GDP) 101.4 108.4 113.3 113.6
* of which private sector 67.0 68.9 68.9 68.6
         
aluminium price (EUR per tonne) 1,822 1,533 1,495 1,542
Source: IMF's Article IV report, Aug 2013

Related Articles

Montenegro’s PM confirms readiness to join Nato - despite shove from Trump at alliance summit

Montenegro’s Prime Minister Dusko Markovic said on May 25 that the Adriatic country is fully prepared to ... more

Ex-Montenegrin President Marovic missing after receiving prison sentence

Montenegro’s court issued an arrest warrant on May 12 for former President Svetozar Marovic who has not been found in his hometown and has not ... more

Adriatic ports hit by Venice tourist clampdown

The number of cruise ships visiting Dubrovnik and other Croatian ports is set to fall dramatically in 2017, a new report presented at the Adriatic Sea Forum has revealed.  As the historic ... more

Register here to continue reading this article and 2 more for free or purchase 12 months full website access including the bne Magazine for just $119/year.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.

Dismiss