Vulnerabilities exposed by the downturn
Overview:
The global economic downturn and associated reduction in credit-related inflows are forcing down Montenegro’s massive current account deficit significantly. FDI flows have been resilient allowing FX reserve levels to stabilise. However, a number of other concerns remain. The decision not to request an IMF agreement has allowed fiscal policy to become very loose. Unit labour costs developments are worrying. Banking sector deposits have yet to stabilise fully despite increased deposit insurance. The economic crisis has exposed Montenegro’s reliance on the tourism and aluminium sectors. Problems in the latter are yet to be resolved. Even when they are, macroeconomic policies will have to be strengthened and structural reforms implemented if lower external imbalances are to be retained as growth recovers.