S&P downgrades Montenegros credit rating by one notch to BB.

By bne IntelliNews April 1, 2010
International rating agency Standard & Poors announced that it had downgraded Montenegro s sovereign long-term rating by one notch to BB, while the short-term rating was affirmed at B and the outlook remained negative. S&P considers that the country remains vulnerable to indirect and contingent risks stemming from the financial and economic crisis. The agency projects that the economy will witness a further decline in 2010 by about 2.5% y/y, following the estimated 6.7% annual drop last year. S&P justifies the credit rating decline also with the projected decline of FDI from the record-high level of 2009, which was influenced by the privatisation process. Moreover, the agency notes that the decelerating wage growth and inflation will result in weak domestic demand not only in the course of 2010, but also in the next couple of years. The negative developments in the real sector are projected to have a negative impact on public finances and thus trigger a further rise of the public debt. The rating agency conditions a potential upgrade of the countrys rating on improvement of the quality of assets in the real and financial sectors, as well as on stabilisation of the budgetary performance. As recalled, Montenegro got its first rating of BB with a stable outlook in December 2004. A year later the outlook was increased to positive and in March 2007 the ratings were increased by one notch. The latest change of the countrys ratings took place a year ago, when the agency revised the outlook on Montenegro to negative, while the sovereign ratings were affirmed.

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