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04/04/2016

The 30th meeting of the Financial Stability Council, attended by the Governor of the Central Bank of Montenegro, the Minister of Finance and the President of the Securities and Exchange Commission was held today.

At today's meeting, the members discussed the Financial Stability Council Report for 2015 and IMF FSAP Mission Staff Report with the action plan for the implementation of recommendations.

The Financial Stability Council Report provides an overview of the Council’s activities in 2015. Analysing and assessing the impact of potential risks from the macroeconomic environment and within the financial system on the financial stability in Montenegro the Council concluded that the system is stable and that the level of systemic risk is moderate. In addition, it was concluded that the pursuit of sustainable economic policy based on growth expansion and recovery of the economy is a prerequisite for reducing the pressures and vulnerabilities potentially arising from the fiscal sector.

It is necessary to encourage new investments and opening of the economic growth potential through an increase of current economic activities and competitiveness. The Council underlined that this would result in the rise in employment, more efficient use of capital, and reduction of risks and vulnerabilities in the system. Expansion of economic activity and widening the basis for economic growth would secure the servicing of current debt, private and public, and provide the basis for new growth. In short to medium term, the contribution to accomplishing these economic objectives can be achieved through accelerated implementation of planned and started projects in the priority economic sectors: tourism, energy industry, agriculture and industry. In addition, growth will be affected by investments in the public sector, which will have a favourable impact on all components of growth by affecting overall spending and employment. It is necessary to continue the current spending consolidation, focusing mainly on the expenditure side and efficient implementation of structural reforms in the fiscal sector, in order to affect this sector’s stability. Strengthening the real sector and efficiently reinforcing the economic growth sustainability will secure financial i.e. macroeconomic stability.

In the upcoming period, the key challenges in terms of system stability refer to providing the following two elements: political stability and high economic growth rate. Moreover, in the area of financial stability, preservation of fiscal stability, sustainability of this policy and public debt management represent the priorities for the upcoming period. In reference to the real sector, low degrees of competition and diversification and the consequential wide current account deficit and still prominent corporate sector’s illiquidity represent the main challenges. In consideration of the financial system, the key challenges are reflected in reducing the interest rates and maintaining the NPL downtrend.

The Council supported the activities on the implementation of recommendations derived from the FSAP 2015 Mission Staff Report for Montenegro and its findings. The key recommendations refer to five areas: financial system resilience, financial safety net, financial surveillance, non-performing assets workout and financial sector development agenda.