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19/12/2016

The 33rd meeting of the Financial Stability Council was held today. The meeting was chaired by Mr. Radoje Žugić, the Governor of the Central Bank, and it was attended by all Council members: Mr. Drako Radunović, the Minister of Finance, Mr. Branko Vujović, the President of the Council of the Insurance Supervision Agency, Mr. Zoran Đikanović, the President of the Securities and Exchange Commission.

At today’s meeting, the members discussed the current condition of the financial stability in Montenegro, the risks and vulnerabilities of the entire economic system observed in the past nine months of 2016. The analysis, which was prepared for the Council, considered the trends and events, originating from domestic as well as international environment, that have influenced the situation in Montenegro’s economy.

In global terms, the increased uncertainty caused a certain degree of deterioration of the world economic outlook for 2016 and 2017. Lower growth rate of global economy, decline in the global trade, uncertainties regarding the oil prices, along with political backdrop, represent the key factors prompting the central banks of developed economies, the ECB and the FED, to maintain the same monetary policy rate and make no changes to interest rates. 

In addition, the ECB introduced an assistance increase and announced that it will continue the measures aimed at strengthening the recovery of the Member Countries.

In the past nine months, the international environment impact and the spillover of risks and uncertainties on Montenegro’s economy were moderate. 

Aside from the international environment, the analysis presented the trends in economic activity, the level and intensity of risks, sources of risks, as well as vulnerabilities threatening the financial stability that originated in the domestic environment. 

Domestic environment is marked by slower than expected growth. Favourable trends are recorded in all the basic sectors of the economy, along with lower growth rates in relation to the same period of 2015. In the nine months of 2016, industrial output declined by 4.2%. Monstat data show that the turnover of goods in retail trade (in current prices) recorded year-on-year increase of 3.9% over the same period. In the first nine months of 2016, tourist arrivals recorded year-on-year increase of 5.2%, while the number of overnights increased by 1.2%. Preliminary Monstat data show that, in the first nine months of 2016, construction recorded a year-on-year increase in the number of executed construction works of 37.3%, and a year-on-year increase in the effective working hours of 20.9%. 

In September, the annual inflation rate amounted to -0.1%. Due to such developments in price trends, the CBCG revised the expected inflation rate for December 2016. Inflation ranging from -0.1% to 1.3%, with the central trend at 0.4% is projected for the end of 2016.  

Insufficient recovery of the real sector, reflected in lower growth rates of the key economy sectors, remains the most prominent risk in the first half of 2016. Credit risk in the banking sector is on a downtrend; however, the level of non-performing loans is still high at 10.2% of total loans.  

The Council also discussed the situation in the fiscal sector, which recorded an increase in revenues, while the budget expenditure declined over the nine months of 2016. Fiscal deficit was recorded, albeit in the amount lower than in the comparative period of 2015. 

At the end of third quarter of 2016, the government debt (gross) amounted to 2.3 billion euros, or 61.8% of GDP.

Indicators point to an increased fiscal risk caused by the public debt pressures. 

To that end, the Council supported the announced Recovery Plan, adopted by the Government. The Council underlined as particularly encouraging the Budget consolidation aimed at reducing the existing fiscal risks.  

The past three quarters of the 2016 were marked by a year-on-year increase in the current account deficit of 13.1%. High import dependence is still present in foreign visible trade; however imports for the purposes of highway construction were reflected as an increase in visible imports. The inflow of foreign direct investments remains moderate, amounting to 551.9 million euros, while the net amount was 281.9 million euros.  

The banking system is stable, solvent and liquid. The insurance market shows favourable trends and stable development, while the situation in the capital market remains unchanged.

The Council finds the condition of the financial system stable in the nine months of 2016.

The Council also discussed the Information on establishing a Database of Traded Real Estate in Montenegro, and supported this initiative.