April 6 (SeeNews) - The World Bank said on Thursday it projects a real economic growth of 3.3% in Montenegro in 2017, 0.3 of a percentage point lower than the forecast made in November.
The World Bank expects Montenegro's economy to grow by a real 3.0% in 2018 and by 2.0% in 2019, the bank said in its Spring 2017 Western Balkans Regular Economic Report posted on its website. In the Autumn 2016 report the World Bank forecast 3.6% GDP growth in Montenegro in 2017.
Although positive, Montenegro’s medium term economic outlook faces substantial risks, the World Bank said.
"The country's economy is expected to grow by an average of 2.8% annually through 2019, but currently, growth is based on an unsustainable model that relies on publicly financed investments and consumption even as the fiscal position weakens. External imbalances are expected to widen again, worsening already high vulnerability to external shocks. Moreover, once the public investment impetus to growth slows, so will overall growth, further exposing Montenegro to existing risks," the World Bank said.
While a recent rise in social benefits will likely help to reduce poverty in the short term, it is also heightening economic vulnerabilities in those people who are becoming detached from the labour market. With inflation forecast to rise, given growing domestic demand and the spillover effect from international prices, real net disposable incomes are likely to fall, the bank said.
Montenegro's fiscal deficits and refinancing needs over the medium term are high, according to the World Bank. The deficit for 2017 is budgeted at 6.6% of GDP, despite consolidation measures already adopted that amount to 3.2% of GDP.
Among the measures are a rise in excise taxes and a reduction in VAT exemptions, improvements in collection of tax arrears, a 25% reduction in the amount of the mother's benefit, an 8% reduction in the wages of officials, a freeze on seniority bonus payments until 2019, and selective cuts in capital expenditures, the World Bank said.
Although the recent consolidation programme is a move in the right direction, additional measures to reduce permanent spending and bring in more revenue will be needed. The high fiscal deficits and rising public debt mean the path of public finances is not sustainable. More ambitious fiscal consolidation will be necessary to create space for an orderly servicing of the refinancing needs for 2019–21, which amount to more than 16% of GDP, the World Bank pointed out.
Reducing the deficit will not be easy but is of the utmost urgency given the need to reassure markets and allow for a successful rollover of existing obligations considering the credit rating of B+ with a negative outlook, the World Bank said.
The World Bank's Spring 2017 forecasts and estimates for 2016 for the main economic indicators in Montenegro follow:
Montenegro |
2016 |
2017 |
2018 |
2019 |
Real GDP growth (percent) |
2.1 |
3.3 |
3.0 |
2.0 |
Consumer price inflation (percent) |
-0.2 |
1.5 |
2.2 |
2.2 |
Public debt (percent of GDP) |
68.0 |
74.0 |
76.4 |
78.1 |
Trade and services balance (percent of GDP) |
-23.9 |
-26.3 |
-26.6 |
-26.7 |
Remittance inflows (percent of GDP) |
3.1 |
4.1 |
3.9 |
3.8 |
Current account balance (percent of GDP) |
-19.2 |
-19.9 |
-20.5 |
-20.9 |
Foreign direct investment inflows (percent of GDP) |
10.0 |
10.2 |
9.8 |
9.8 |