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IMF praises Montenegro’s economic strength and fiscal strategy

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The Executive Board of the International Monetary Fund (IMF) recently released the 2024 Montenegro Report, applauding the country’s strong dedication to European integration. It emphasized the need to capitalize on the momentum following the formation of a new government to enact crucial structural reforms and advance the EU accession process.

According to the Ministry of Finance, the IMF affirmed a robust economic rebound post-COVID-19 pandemic and a notable enhancement in fiscal standings.

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The statement encourages authorities to build on prior accomplishments by effectively reinforcing fiscal policies, enhancing financial sector oversight, and fostering economic diversification, with IMF’s assistance as necessary.

The IMF also commended Montenegro’s commitment to fiscal prudence within defined parameters, as well as plans to devise and adopt a fiscal strategy and implement a new medium-term debt management plan. It endorsed maintaining a zero primary balance to keep debt below 60% of GDP.

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Projections suggest a fiscal deficit from 2024 onward, coupled with a gradual debt increase due to financing requirements, primarily stemming from new investments in existing infrastructure projects, notably the ongoing highway construction.

The Ministry of Finance highlighted that essential budget financing would prioritize projects vital for enhancing citizens’ economic and social well-being.

Furthermore, data used for IMF projections during the mission in late January and early February did not incorporate fiscal measures outlined in the Fiscal Strategy, nor the anticipated decrease in borrowing costs in the international market, evidenced by the recent bond issuance in March.

The IMF Executive Board concurred on the necessity for adjustment measures to stabilize debt around the 60% of GDP threshold in the medium to long term, aligning with existing fiscal laws and signaling a steadfast commitment to fiscal responsibility.

Key observations from the mission report include a significant fiscal improvement in recent years, with public debt decreasing from its peak in 2020 to an estimated 61.5% of GDP. Additionally, the IMF underscored successful international market engagement, notably through bond issuances at favorable rates.

Structural fiscal reforms remain crucial for sound public finances, encompassing initiatives such as strengthening tax administration, enhancing social spending targeting, controlling public sector wage growth, and bolstering oversight of state-owned enterprises.

Lastly, the IMF noted a more resilient Montenegrin economy, benefiting from robust tourism and increased consumer spending, supported by reforms initiated in 2022 and augmented by affluent Russian and Ukrainian nationals’ influx. Unemployment rates hit historic lows, with GDP growth projected at 3.7% in 2024 and sustained growth at 3% in the medium term. The inflation gap between Montenegro and the eurozone is expected to narrow further, barring new shocks in international commodity prices or significant wage increases.

In its recommendations, the IMF stressed the potential to mitigate economic volatility through economic diversification, particularly in renewable energy production. It advocated for maintaining robust public finances supported by a medium-term fiscal strategy, strengthening banking system oversight while enhancing anti-money laundering and counter-terrorism financing frameworks, and tapping into the substantial potential of women in the workforce.

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