July 1 (SeeNews) - Montenegro's economic growth has been strong and fiscal adjustment has improved budget balances, but high public debt limits the government’s room to counteract possible future downturns, the International Monetary Fund (IMF) said.
Additional efforts are needed to strengthen the financial system so that it can better support higher investment and living standards, while the current structure, tools, and processes for bank supervision and anti-money laundering need further enhancement, the IMF said in the concluding statement of the mission for the 2019 Article IV consultation with Montenegro on Friday.
"The central bank is moving in the right direction to address these issues. Forceful and effective implementation of reforms in these areas, as well as the implementation of the planned asset quality review (AQR) of the banking system by end-2020, will be critical," the IMF said.
The costs and benefits of completing further phases of the Bar-Boljare motorway in the near term need to be carefully analysed as a credible new feasibility study is essential before any decisions on financing mechanisms are made.
"A rush to complete this project could also entail large fiscal costs. The burden of these costs would leave the economy much more vulnerable to shocks," the Fund said.
In conjunction with a long-term growth strategy, the ratio of public debt to the gross domestic product (GDP) needs to be reduced in the nearer term to cope with possible changes outside Montenegro, the global lender recommended. To make budgeting procedures even stronger, the authorities could consider an overall expenditure limit that governs the medium-term budget, while the pension, public employment and tax exemption systems need to be reformed in the next few years to build fiscal space.
An IMF mission visited Montenegro during June 17-28 to conduct the 2019 Article IV consultation.
The IMF said in April said it expects Montenegro’s economy to expand by a real 2.8% in 2019, increasing its forecast for 2.5% growth projected in October last year. Montenegro's GDP is expected to grow 2.5% in 2020 and 2.9% in 2021, the IMF said in its April 2019 World Economic Outlook report.