Credit Rating Agency “Standard and Poor’s“ published the Report on Montenegro Long – Term Sovereign Credit Rating.

On March 31, 2010, Standard & Poor's Ratings Services lowered the long-term sovereign credit ratings on Montenegro 'BB' from 'BB+'. At the same time, affirming the short-term sovereign credit rating at 'B'. The Transfer & Convertibility assessment on Montenegro remains 'AAA'. The outlook is negative. Montenegro's government continues to be vulnerable to indirect and contingent risks associated with the significant pressure on its real economy and banking system, and deteriorating asset quality. The Montenegrin economy is suffering a hard landing; Standard & Poor's estimates that GDP contracted about 6.7% in 2009 and expects a further 2.5% contraction in 2010. Over the same period, the current account deficit has been narrowing, to about 18% of GDP in 2009, according to our estimates, from about 30% of GDP in 2008. Strong inflows of foreign direct investment (FDI), which we estimate were about 30% of GDP in 2009, more than covered the current account deficit last year. But we expect FDI to decline in the coming years as privatizations decrease and real estate-related FDIs wane. Wage growth and inflation have been decelerating, which because of the country's use of euro and therefore lack of exchange rate flexibility, could imply growing deflationary pressures as the economy adjusts to regain lost competitiveness. As a result, the expected growth of the most tax-rich components of economic growth, in particular domestic demand, to be weak in the next couple of years. Montenegro's economic adjustment has weakened the liquidity position of the country's corporate sector, with important knock-on effects on the financial health of the banking sector. The deterioration in asset quality has been compounded by about a 10% reduction in bank lending to the private sector in 2009, following more than 80% average growth from 2005 through 2008. Because of growing losses in the banking system, rising funding needs and the continuing decline in total deposits (about 11% in 2009) have so far been meet with adequate support from parent banks. The banking system as a whole appears well-capitalized, with capital adequacy ratios at about 15% at end-2009. However, this may mask solvency risks at individual institutions. The deleveraging of the real economy and financial system has also weighed on budgetary performance. Lower economic activity and rapid narrowing of Montenegro's current account deficit have depressed the tax base, mainly through lower value-added tax receipts and a decline in personal and corporate income tax revenues. The government has partly offset the budgetary impact of the revenue shortfall by cutting public wages and current spending, limiting the general government deficit to what we estimate at 3.5% of GDP in 2009. Nevertheless, as a result of the deficit and GDP contraction, general government debt has increased to almost 39% of GDP in 2009 from 29% in 2008, and we expect that to reach 46% in 2011 before reversing. A weak economic environment will continue to weigh on public finances, including through rising contingent liabilities from the financial sector and the state guarantees to the corporate sector.