Fiscal deficit must be cut despite Eurobond
Overview:
The economic downturn in Montenegro has been severe. The economy may finally have returned to positive y-o-y growth in Q3. The government still has significant work to do, though, in tackling a very large fiscal deficit. Financing of this deficit has been secured due to a recent successful Eurobond placement although at a considerably higher price than would have been the case under an IMF program. However, loose fiscal policy still threatens the stability of the public debt to GDP ratio and contributes to a large current account deficit. In the medium-term, a significant challenge remains in maintaining competitiveness given the adoption of the Euro. Inflation is low but real wages tend to rise faster than productivity. News is better on the European integration front where the authorities have returned the Commission’s Questions and expect to gain the status of official candidate next year.