October 19 (SeeNews) - The World Bank said on Thursday it has lifted its projection for Montenegro's economic growth in 2017 to 4.2%, 0.9 of a percentage point higher than the forecast in its June 2017 Global Economic Prospects Report.
Montenegro's gross domestic product (GDP) is expected to grow by 2.8% in 2018 and 2.5% in 2019, the World Bank said in its October 2017 Europe and Central Asia Economic Update Report.
"After slowing in 2016, growth increased in 2017 due to the surge in investment and tourism. Despite employment rise and unemployment rate decline, labor force participation rate remains low. Poverty is estimated to have declined in 2016, as social transfers surged," the World Bank said.
"Despite positive economic outlook and ambitious fiscal strategy for regaining control over public finances, short-term social impacts of fiscal consolidation and facilitating access to employment of women losing mothers’ benefit remain to be the challenge of the policy agenda," the bank added.
Montenegro's economy is expected to grow by an average of 3.2% annually in 2017-2019 driven by public investments and personal consumption. While the growth of investment will slow down as the Bar-Boljare highway construction gets to its closure, its contribution to growth will remain strong throughout the projection period, the World Bank said.
Current imbalances are likely to stay high given the import dependence of the current growth pattern. Inflation is projected at 2% in the period 2017-19, as the VAT rate rise adds to the current inflation growth. The fiscal deficit is projected to be brought down to 2% in 2017-19, reaching balance in 2019 and maintaining surplus thereafter to comply with the fiscal rule by 2022, the bank noted.
While the authorities work on strengthening the financial sector regulation, the private sector needs to address weaknesses in some non-systemic banks and use the recently adopted framework to resolve non-performing loans (NPLs).
"The positive economic outlook faces high but moderating risks. Growing public debt calls for a decisive implementation of the recently adopted fiscal consolidation program to create the space for an orderly servicing of the large (above 16% of GDP) refinancing needs in the 2019-2021 period. External imbalances are still high, adding to an already high external vulnerability. Enhancing policy predictability and accelerating the pace of structural reforms, would be needed for their moderation" the World Bank said.
The economy of Montenegro expanded by 2.5% in 2016, according to the World Bank estimate in the report.