Montenegro: S&P affirms B+/B sovereign ratings, cuts outlook to negative

S&P affirmed Montenegro’s B+/B long- and short-term foreign and local currency sovereign credit ratings but cut the outlook on them to negative from stable, according to a statement. The agency based its negative action on its revised fiscal forecasts, which suggest that the public debt will rise faster than originally anticipated. The agency expects the public debt to increase to around 80% of GDP by 2019 from 63% of GDP at end-2015, which will further constrain the country’s capacity to respond to domestic and external shocks. The agency also said that the negative outlook also reflects the possibility of rating cuts if the government fails to improve the public finances and create fiscal buffers.

The agency said that the major risks for Montenegro are related to Bar-Boljare highway project cost overruns and poor oversight of the finances in the lower tiers of the government. The agency said that a rating cut is imminent if the fiscal deficit widens further and the public debt continues to grow sharply in the next 12 months. On the other hand, fiscal consolidation measures leading to a reduction in fiscal and external imbalances or faster than expected economic growth may lead to a positive rating action, the agency added.

Republic of Montenegro Selected Indicators
  2015 2016 2017 2018 2019
ECONOMIC INDICATORS (%)
Nominal GDP (bil. LC) 4 4 4 4 4
Nominal GDP (bil. $) 4 4 4 4 5
GDP per capita (000s $) 6.4 6.6 6.8 7.1 7.4
Real GDP growth 3.2 4 2.8 2.8 2.8
Real GDP per capita growth 3.1 3.9 2.7 2.7 2.7
Real investment growth 13.5 14.5 10 5 5
Investment/GDP 22.1 24.3 26 26.6 27.2
Savings/GDP 8.7 10 10 10.3 10.8
Exports/GDP 40.7 41.1 41.7 43 44.2
Real exports growth 8.6 4 4 5.5 5.5
Unemployment rate 16.5 16.3 16.2 16 15.8
EXTERNAL INDICATORS (%)
Current account balance/GDP -13.4 -14.4 -16.1 -16.3 -16.4
Current account balance/CARs -24.6 -26 -28.9 -28.7 -28.4
Trade balance/GDP -40.7 -41.8 -43.5 -44.2 -45
Net FDI/GDP 17.2 18 18 18 18
Net portfolio equity inflow/GDP -0.3 -0.4 -0.4 -0.4 -0.4
Gross external financing needs/CARs plus usable reserves 141.9 140.7 132 125.2 121.8
Narrow net external debt/CARs 187.3 181.1 179.1 170.6 158.1
Net external liabilities/CARs 541.1 553.3 567.4 566.3 559.9
Short-term external debt by remaining maturity/CARs 60.5 57.5 45.7 38.6 35.5
Reserves/CAPs (months) 2.9 2.9 3.0 3.1 3.2
FISCAL INDICATORS (%, General government)
Balance/GDP -8.1 -9.1 -9.4 -6.3 -3.8
Change in debt/GDP 5.4 9.1 9.4 6.3 3.8
Primary balance/GDP -5.8 -6.7 -6.7 -3.2 -0.4
Revenue/GDP 36.9 37 38 37.5 37
Expenditures/GDP 45 46.1 47.4 43.8 40.8
Interest /revenues 6.2 6.5 7.1 8.3 9.1
Debt/GDP 63 68.8 75.3 78.4 78.7
Debt/revenue 170.8 185.9 198.2 208.9 212.8
Net debt/GDP 59.7 65.7 72.3 75.5 76
Liquid assets/GDP 3.3 3.1 3 2.9 2.7
MONETARY INDICATORS (%)
CPI growth 1.5 1.7 1.7 2.0 2.3
GDP deflator growth 0.8 1.5 1.5 1.7 1.7
Exchange rate, year-end (LC/$) 0.92 0.94 0.93 0.93 0.93
Banks’ claims on resident non-gov’t sector growth 2.4 2.8 3.0 3.5 3.5
Banks’ claims on resident non-gov’t sector/GDP 52.3 50.9 50.3 49.8 49.3
Source: S&P

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