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IBRD approves PBG2, sign of great confidence in su...
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IBRD approves PBG2, sign of great confidence in sustainability of Montenegro's public finances
Published on: Mar 7, 2020 • 4:45 PM Author: PR Service
The International Bank for Reconstruction and Development (IBRD) has approved second policy based guarantee (PBG2 – Policy Based Guarantee) to Montenegro worth EUR 80 million. The second guarantee in the fiscal and financial sector resilience supports Government reform policies aimed at: strengthening the fiscal sustainability and resilience of the financial sector. This guarantee will enable Montenegro to provide up to EUR 250 million in financial market which will, to a large extent, satisfy the needs of financing, that is, refinancing and repayment of public debt in 2021. This is an important step to further strengthen fiscal resilience, following the successful issuance of Eurobonds in September 2019, and activities to further develop the domestic capital market, when funds were provided for refinancing and repayment of public debt in 2020.
The approved guarantee supports the Government in the implementation of fiscal consolidation, which aims to create the conditions for long-term sustainability of public finances by reducing the deficit or public debt. The IBRD recognised the fact that for three years we have been observing the “golden” fiscal rule that current expenditures are financed from current revenues and thus the funds will be provided for financing the capital budget and debt repayment.
Considering that this is a second guarantee, this is another confirmation of the successful implementation of the fiscal consolidation, i.e. the credibility of the fiscal policy and the achieved overall macroeconomic stability of the country, thereby achieving the strengthening of the overall economic position of Montenegro.
It is important to point out is that the funds of the arrangement, as already indicated, will be earmarked for financing commitments in 2021, with a reminder that funding for 2020 has already been provided. This is particularly important to note, given that in the previous period, through the publication of certain newspaper texts, it was stated that an additional borrowing of EUR 590 million was required for the financing of the budget in 2020. We take the opportunity to point out that these are clearly speculative and malicious statements by certain media intended to disinform public. It is true that the needs for budget financing and debt repayment in 2020 have already been met by the accumulation of government deposits in 2019 that will be used for these purposes, and the existing credit arrangement for the motorway priority section.
By mobilizing funds through the PBG 2 arrangement, financial stability is ensured in the coming period, which is an integral part of the plan of the medium-term public debt management strategy, while reducing the potential risks of possible adverse movements in the capital market.
In accordance with the policy of the Government of Montenegro, activities are being undertaken to provide a declining trend of public debt to the level of the planned 62% of GDP by the end of 2022. In this way, the implementation of the Deficit and Public Debt Recovery Plan and the Fiscal Strategy of the Government of Montenegro ensures the necessary convergence and, in the medium term, the fulfillment of the Maastricht criteria, i.e. the achievement of a public spending deficit below 3% of GDP (already achieved in 2019) and public debt below 60%.
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