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Montenegro, will 2023 be completed without rebalancing the budget?

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Bearing in mind the unpredictability of global flows caused by the war in Ukraine, the continuation and extent of the energy crisis, and their impact on the Montenegrin economy, it is expected that next year will also be uncertain in terms of macroeconomic trends, which is why it would be frivolous to guarantee that there will be no need for rebalancing. Finance Minister Aleksandar Damjanović said in an interview for „Dan“ in response to the question of whether we will finish the year 2023 without rebalancing. In 2022, we had two budget rebalancings.

– On the other hand, the budget for 2023 represents a cross-section of the situation when it comes to the needs of the state based on existing legal solutions. In this regard, the Government and the Ministry have already submitted several laws to the procedure, and new regulations are also planned, which should contribute to the consolidation of public finances, i.e. higher revenue collection and rationalization of consumption. Our goal is to, in the general circumstances, try to contribute to achieving a better result than planned and create additional flexibility of the budget and public finance system to absorb any unplanned negative impacts. In itself, the rebalancing is not a negative phenomenon, but a consequence of the very unpredictable circumstances in which it is, and will be, in the EU, as well as Montenegro as a candidate country, said Damjanović.

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Numerous criticisms were directed at the budget, while you claimed that it is a measure of what is possible and a cross-section of the state of public finances. Did the budget have to be dominantly focused on spending and increasing expenditures, while on the other hand there were almost no savings?
The budget, I will repeat, is a reflection of the application of existing legal solutions. Unfortunately, roughly 90 percent of budget spending represents the so-called mandatory costs, which cannot be reduced without changing those laws. In other words, the remaining 10 percent of public spending represents a framework for action aimed at achieving added value. In this regard, we tried to determine the biggest increases according to departments that contribute the most to this goal, such as the department of economy, agriculture, science and technology, of course not neglecting key systems such as education, health, PIO, social benefits.

However, it is definitely necessary to focus on the optimization of spending, and we plan to make this issue one of the priorities during the next year, in cooperation with the relevant ministries. Here, I am primarily referring to the policy of social benefits, which in certain segments requires a better focus on the categories of users who are in real need, then the health system, which requires serious reform, and we will work intensively on this in cooperation with international partners. I would like to remind you that the Public Administration Reform Strategy is being implemented, the bearer of which is the Ministry of Public Administration, and in the segment of its competences, the department headed by me will make a full contribution to the implementation of measures to optimize the state apparatus. Additionally, at the proposal of the Ministry of Finance, the Public Finance Management Program for the period 2022-2026 was adopted in December, which foresees a series of structural reforms, the implementation of which should ensure the further strengthening of public finances, sustainability and stability, the application of good practice and the realization of full compliance with the legal EU acquis. In this way, we will try to systematize aspects of consumption and their correlation with the realization of planned goals, i.e. performance.

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Also, despite such a high level of mandatory expenditures, we considered that we must provide additional funds in the area of the capital budget, which is why the administrations in charge of implementation will have 35 million euros more available for the implementation of capital projects. From the aspect of the system, in the hope that prices will stabilize on the construction materials market, which was the main reason for the worse performance of the capital budget in 2022, we expect that this development segment of the budget will have a better performance in the next year.
The commission Is looking for a solution for the plane “Charlie”

What will happen to the plane “Charlie”? When will the state pay the debt and buy the plane and is the plan to prepare the plane for flights or does the government have other plans with it?

The government formed an operational team that gathers members of the Ministry of Capital Investments, the Ministry of Finance and other relevant institutions, with the aim of making a comprehensive but also quick analysis from both the legal and financial aspects, and proposing solutions for further negotiations with the Ministry of Economy of Brazil and BNDES regarding the embraer ERJ 190-200 LR, popularly called “Charlie”.

I will remind you that at the end of January 2021, the last talks were held with BNDES for a peaceful settlement of the dispute in the amount of 4.99 million dollars for the acquisition of ownership of the plane, and that the Government, according to the conclusions of the negotiations, is in session in June of last year , approved the purchase under the conditions and in the manner determined by the adopted information, for the total amount of 5.36 million dollars. However, the purchase did not take place and the mentioned conclusion was invalidated. Why, no one knows that and it is a question for those responsible at the time.

If the purchase is realized in the next year, funds for these leases will be provided in the budget for 2023, while the further fate of the aircraft will be determined according to its most rational use, bearing in mind that it would become state property, not the property of the airline.

How much money did we borrow after the rebalancing of the planned 350 million and how much will we have to borrow next year from the planned 600 million? You said that the more deposits we have, the less need there will be for debt in the coming year…
After the adoption of the rebalance, the Ministry of Finance launched the issue of government bills, which was carried out through three auctions and within which 39 million euros of bills were issued. In addition to the above, credit arrangements with domestic banks (Univerz Kapital Bank and Erste Bank) in the amount of EUR 16 million, and an arrangement with CKB Bank in the amount of EUR 50 million, were concluded. Therefore, the total commercial debt for budget financing and deposit creation in 2022 amounted to 105 million euros.

The proposal of the Budget Law for the year 2023 foresees missing funds in the amount of 705 million euros. Given that it is planned to end the year with some between 50 and 100 million euros in deposits, the rest of around 600 million euros will be provided on the domestic and international financial markets.
We need to create a proper economic citizenship program

What will happen to the economic citizenship program?

The validity of the existing model for acquiring economic citizenship will not be extended, as this is an explicit request of our EU partners. We have to work on creating a modified model that will allow us to keep some of the numerous positive effects it has had on our economy and finances and at the same time be aligned with the investment migration programs that exist in European countries, and are in line with the Brussels guidelines, since integration into the club remains a priority government policy.

The intention is that with the strictest measures in the security check of each applicant, with complete transparency of the implementation, it will be possible to retain and increase the income on that basis, which will be invested in the less developed areas of Montenegro, primarily in the municipalities in the north, as well as projects of public importance.
Is Montenegro headed for debt slavery or perhaps bankruptcy considering that in the next three years it plans to borrow 2.55 billion euros, and in the same period make a deficit of 1.2 billion euros? Can public finances sustain such a deficit and loans at high interest rates?

It Is true that a debt of 2.55 billion euros is planned for the next three years, but it should also be emphasized that more than half of the stated amount refers to the repayment of the debt from the previous period, which is due in the next three years. Bearing in mind that Montenegro has so far shown a high degree of responsibility towards creditors in terms of the regularity and accuracy of debt repayment, we will strive to maintain such a reputation, in order to maintain the relationship with investors and creditors at a traditionally good level. Montenegro cannot influence global events on the economic and financial level, and that’s why interest rates are something that we have to adapt to. Interest rates are high not only for Montenegro but also for much richer countries. Therefore, the solution should be sought in financial bridging (so-called bridge financing) until the situation stabilizes, after which the focus should be on longer-term instruments such as Eurobonds. Of course, if market conditions show positive signals, the Ministry of Finance does not rule out the possibility of implementing Eurobonds in 2023 as well. By the way, I would like to remind those who care that when the bonds were issued in 2020 at a level of close to three percent interest, which was briefly celebrated as great, that year there was deflation at the level of both the EU and Montenegro, i.e. inflation below zero. And here now, when inflation is 15-20 percent, the same is, look at the miracles, too high interest of 6-7 percent. I don’t want to explain further, smart enough.
The merger of the Port of Bar and the Port of Adria would increase efficiency

What are the state’s plans with Luka Bar? Will the state try to acquire, or regain, the majority stake in the Port of Adriatic?

As you know, the State bought all the shares owned by the minority shareholders of Luka Bar AD, marked with the symbol LUBA, which were offered on the Montenegro Stock Exchange, thereby increasing the ownership share in this company to more than ¾. It is a profitable and strategically very important company, which, judging by the current parameters, can pay a dividend and pay off the investment in a short period of time.

On the other hand, with this move, the Government secured a qualified majority for making a decision on the restructuring of the Port of Bar and its eventual merger with the Port of Adria, which would result in greater efficiency through operations in a single port area, and give impetus to accelerated economic growth through adequate valorization of geographical potentials our country. I expect that these two ports, which have the potential to become an essential hub of the logistics system of Southeast Europe, will come to full expression through the implementation of infrastructure projects. The increased ownership of the state in the Port of Bar guarantees the majority ownership of the state in a single company, after, I hope, the successful unification of the Port of Bar and the Port of Adria.

Does the Government plan to buy company shares in the coming year? If he plans, what are all the businesses in the game?

The government is determined to restore to majority qualified ownership of the state strategically important companies that were problematically privatized due to bad decisions in the previous period. We treat this chance as an investment in capital, with a short term for the return of the investment, with the aim of increasing state assets, but also with the aim of further development and prosperity of certain companies that have significant potential, local media reported.

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