Montenegro emerges from recession, says Head of IMF mission

Montenegro came out of recession and the IMF projects growth of around two per cent in 2011 due to high prices of Montenegrin export products on the international market, new projects in tourism, increased confidence in the financial system and the start of fiscal consolidation, Head of IMF mission to Montenegro Gerwin Bell told the press conference presenting the IMF Mission preliminary results. However, there are a number of issues that need to be resolved such as poor labour relations and financial problems in Montenegrin key industrial enterprises, the IMF representative underlined.

He noted that it is critical for labour market to be invigorated through resisting demands to restrict the availability and flexibility of fixed-term contracts and through more affordable severance packages, otherwise the future reconstruction and new hiring will be prevented.

As to the financial sector, there is a necessity for fully renewing the soundness of the entire system, enabling ‘’ banks to meet credit growth once credit demands actually returns’’. According to IMF, The Central Bank of Montenegro must be uncompromising in addressing any weakness in the system through conducting regular controls and requesting adequate solvency and liquidity.

Furthermore, the sustainable economic growth requires, as he noted, the necessity to continue ongoing reforms in terms of introducing flexibility, empowering banking sector supervision and providing budget consolidation.

‘’Private investment holds the key to economic growth and job creation and has to be advanced though domestic flexibility and competitiveness of prices. Any hurdles for investments need to be overcome as soon as possible’’, Mr Bell highlighted.

The Head of the IMF mission concluded by saying that the budget targets for 2011 and the medium term are appropriate and will bring about the encouragement of sustainability, reduced financial risks and boost of economy in the case of unforeseen shocks.

’’In terms of fiscal projections, we jointly concluded that a substantial fiscal consolidation has been performed and therefore the fiscal position of Montenegro has been improved, but that there are also risks that we need to assess and monitor, and to put strong efforts to minimize them”, Montenegrin Finance Minister Milorad Katnic told the press, explaining that the recognised risks are related to increase in public debt and issued guarantees. He also pointed to the need for the full respect of the adopted medium-term budget framework which should provide additional fiscal consolidation and long-term stability and sustainability of the country’s public finance.

Minister Katnic underlined the need for the private sector to be the driving force behind the economic growth, as well as for structural reforms in sensitive areas such as labour market, education, health and social system, pension system and social insurance.

He also remarked that this year Montenegro will not enter the loan engagement with the IMF for its budgetary needs, unless the conditions on the international market change drastically. Instead, Montenegro plans to launch a new bond issue, Minister Katnic concluded.

You can download IMF Preliminary results here.