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PODGORICA (Montenegro), November 19 (SeeNews) - Montenegro should further reinforce the sustainability of public debt as a key priority in 2020, the European Bank for Reconstruction and Development (EBRD) said on Tuesday.
"Achieving this will require, among other things, the maintenance of a primary surplus over the medium term, sustained efforts to strengthen budgeting procedures and public investment management and improved public and tax administration," the EBRD said in its Transition Report 2019-2020.
"Once the first phase of the highway project is completed, any further construction should be preceded by a careful cost-benefit analysis," the bank noted.
Montenegro's public debt increased to almost 75% of GDP at the end of last year, mainly due to the large highway project financed by a Chinese loan.
In October 2014, the government signed a $944 million (853 million euro) loan deal with the Export-Import Bank of China (EXIM Bank) to finance the construction of the 41-km Smokovac-Matesevo section of the future motorway linking Montenegro's Adriatic port of Bar to the border with Serbia. The loan has an interest rate of 2% and a six-year grace period.
China Communications Construction Company (CCCC) started building the Smokovac-Matesevo section in 2015, with the works expected to be completed by the middle of 2020.
The EBRD also said that Montenegro needs to work on lowering the share of the informal sector in order to ease the operations of local micro, small and medium-sized enterprises. The measures to be put in place should focus on fighting regulatory burden, weak enforcement capacity and corruption.
Another key priority for Montenegro next year should be the strengthening of the financial system via introducing a bank asset quality review and stronger banking supervision.
"In addition, the central bank should closely monitor the rapid growth of cash loans with long maturities in order to limit potentially negative systemic effects," the EBRD said.
The bank expects Montenegro's economic growth to slow down to 2.8% this year and 2.6% in 2020, from last year's 5.1%, with the completion of large investment projects.
"Still, private investment in tourism and energy is expected to stay high. The risks to the projections mainly relate to weaker growth in the European Union," the EBRD said, adding that a reform of the labour market and public administration, coupled with strengthening the economic institutions, could mitigated growth risks.