June 28, 2019 / 10:45 AM / 4 months ago

IMF raises Montenegro's economic growth forecast to 3% in 2019

SARAJEVO, June 28 (Reuters) - The International Monetary Fund said on Friday it expected Montenegro’s economy to expand 3% in 2019, raising it slightly from a previous forecast of 2.8%.

“In the absence of further reforms, growth is expected to average just under 3% in the next five years,” the IMF said in a concluding statement after a two-week visit to the Balkan country to evaluate the state of its economy.

Motenegro’s economy grew nearly 5% in 2018.

The lender warned that public debt, which limits the government’s room to counteract possible future downturns, had to be reduced from current high levels.

“Excluding highway spending, the primary fiscal balance has swung from a deficit of 1% of GDP in 2016 to a surplus of 2%percent in 2018. However, general government debt including guarantees stood at 79% of GDP in 2018, a level that is still too high,” it said.

The maintenance of currently projected primary surpluses over the medium term of 2% of GDP is critical to reduce the level of public debt, the lender warned.

A Chinese loan for the first phase of construction of a 165 km highway linking the port of Bar on Montenegro’s Adriatic coast to landlocked neighbour Serbia, has sent Montenegro’s debt soaring and forced the government to raise taxes, freeze public sector wages and end some social benefits.

“The costs and benefits of completing further phases of the Bar-Boljare highway in the near term need to be carefully analysed,” the IMF said, adding that a rush to complete the project could entail large fiscal costs that would leave the economy much more vulnerable to shocks.

It said that stronger budget procedures would help sustain recent fiscal gains and that progress on pensions reform, an overhaul of the public sector and eliminating wasteful tax exemptions would help further build fiscal space.

Banking and anti-money laundering supervision had to be improved and the central bank should ensure the completion of a bank asset quality review by end of 2020, the IMF said. (Reporting by Maja Zuvela; Editing by Susan Fenton)

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