Moody's changes Montenegro's outlook to stable, affirms ratings.

By bne IntelliNews March 31, 2011
Rating agency Moody's changed the outlook on Montenegro's sovereign ratings to stable from negative, the agency announced. At the same time, Moody's affirmed the ratings of the country. Thus, the government bond rating remained at Ba3, while the foreign currency deposit ceiling was confirmed at B1 and the foreign currency bond ceiling remained at Baa1. The agency justifies its motion of changing the outlook by the evidences for fiscal consolidation, financial system stabilisation and overall economic recovery. The lower-than-planned budget deficit in 2010 and, even more importantly, the gradual reduction of the structural weaknesses of the public finances were pointed out as major factors influencing the upgrade. Moreover, Moody's mentions the regained confidence in the banking system and deposits increase, as well as the strengthening of the capitalisation levels of the system and its liquidity, which lowered the potential contingent liability for the state. Overall, the economy was able to reverse the negative trends and to start a gradual recovery witnessing a slight real GDP growth in 2010, which also contributed to the ratings' upgrade. The country obtained an EU candidate country status in December 2010, which was also assessed positively by Moody's. The agency conditions its further ratings increase on further improvements in the public finances, namely budget deficit decline and reversal of public debt rising trajectory. Moody's assigned for the first time sovereign ratings to Montenegro in 2008. It downgraded the country's rating in April 2009 on the deteriorating economic environment.

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