Meetings with the IMF: Economic recovery encourages, structural reforms necessary


The Montenegrin delegation led by the Minister of Finance and Social Welfare, Mr Milojko Spajić, and the Governor of the Central Bank of Montenegro (CBCG), Mr Radoje Žugić, held several video meetings with senior IMF officials within the Annual Meetings of the World Bank Group and the International Monetary Fund (IMF).

At the meetings with Mr.Bo Li, the IMF Deputy Managing Director, and Mr Srikant Seshadri, head of the IMF Mission to Montenegro, the delegation discussed our country’s current health, macroeconomic and financial situation. It was estimated that, after last year’s recession caused by the coronavirus pandemic, Montenegro was on the strong economic recovery path, confirmed by the positive macroeconomic trends, which the IMF representatives noted with encouragement.

On a global level, Mr. Li stressed the importance of immunization as well as accelerating and implementing reforms as necessary conditions for a robust economic recovery from the consequences of the pandemic.

Minister Spajić pointed out that, despite the 15.3% GDP drop in 2020 resulting from the closed borders policy, Montenegro was one of the few countries that managed to recover sharply. He announced that preliminary estimation of the GDP growth for this year was 13%. preliminary estimation of the GDP growth for this year is 13%. He also emphasised that the planned tax system reform through the “Europe Now” programme would improve citizens’ living standard and reduce the labour market’s informal economy.

“An enormous success has been achieved - revenues from tourism for the three-quarters of 2021 amount to about 700 million euros, exceeding all projections. We have a budget surplus for three consecutive months (June, July, and August) of over 105 million euros, contributing to budget deficit reduction to only 1.2% for January-August this year, compared 10.2% in 2020” said Spajić. He also pointed out that he envisages a reduction in state debt from over 100% to below 80% by the year-end.

Asked by Mr. Seshadri on the role of Montenegro Works, the Minister explained the importance of setting up this company for improving the management of state assets, in line with best international practice. Minister Spajić also discussed the “Europe Now” programme. The programme includes reducing the tax burden on labour from 39% to some 20-25% depending on the income amount and a set of measures contributing to salary increases.

Governor Žugić informed his interlocutors about the banking sector’s condition and presented the results of the recently completed Asset Quality Review (AQR) project. He pointed out that, despite the corona crisis, the banking system has remained stable. Banks are liquid and well-capitalised, while all key balance sheet positions are recording positive trends. 

“Deposits are at an all-time high and confirm strong confidence in both the banking system and its supervisor,” said Mr. Žugić. He added that, even though AQR resulted in a slight solvency ratio reduction at the end of 2019, banks own funds’ growth in 2020 and 2021 more than compensated for the correction. The solvency ratio is currently 19.2%, almost twice the statutory requirement.

Mr. Li and Mr. Seshadri commended the CBCG on the successful completion of the AQR. They added that the IMF would continue to assist the CBCG in its efforts to further strenghten the banking sector and to improve its supervisory capacity. The IMF representatives enquired about CBCG’s plans regarding the duration of previously adopted measures aimed at mitigating the impact of the pandemic on the economy. The Governor said that the CBCG has been regularly monitoring the implementation of measures and assessing their justification. Accordingly, it would make subsequent decisions on this issue, strictly adhering to the key objective which is preserving the banking sector’s stability.

The Montenegrin delegation also held meetings with Paul Hilbers, Executive Director of the IMF, and Mr. Alfred Kammer, the Director of the European Department at the IMF. Mr. Liviu Voinea, Senior Advisor to the Executive Director, acting as Montenegro’s representative to the IMF Board, also attended these meetings. 

Mr Hilbers expressed satisfaction with the successful tourist season that significantly contributed to the economic recovery and the encouraging fiscal trends. He also commented on the AQR project emphasising that its implementation was a positive step for the CBCG.

Mr. Kammer noted that Montenegro, like many other countries, faces the twin challenges of recovering from the crisis, and implementing reforms that will enhance economic resilience by creating buffers against future crises. He also observed that it has been significant for Montenegro’s recovery that the banking sector has stayed stable. 

Minister Spajić pointed out that the adoption of programme-based budgeting was instrumental in enabling a rationalization of state administrative costs to a degree not seen in previous years, while also increasing transparency. The hedging arrangement for Chinese debt eliminated currency risk and saved 4 million euros in the first instalment for the highway. He emphasised the intention to retire legacy expensive loans early, discussed plans for public administration optimisation, and the to increase the capital budget next year. Mr Kammer commended the Ministry of Finance and Social Welfare’s commitment to reforms and the reduction of the budget deficit in a short period.

Governor Žugić thanked Director Kammer for the excellent cooperation and support provided by the IMF to the CBCG through several technical assistance programmes, particularly noting the assistance in preparing the amendments to the CBCG Law.