S&P affirms Montenegro’s B+/B sovereign ratings

S&P affirmed Montenegro’s B+/B long- and short-term foreign and local currency sovereign credit ratings and their stable outlook, according to an official press release. The ratings remain constrained by the high net general government debt, which the agency expects to peak at 63% of GDP by 2020. The agency said that the ratings are also constrained by the high current account deficit and the lack of monetary flexibility due to the adoption of the EUR as national currency. On the other hand, the agency said that the growth potential of the economy remains favorable due to developments in the energy and tourism sectors, as well as the implementation of structural reforms, needed for the country’s EU integration.

S&P said that GDP growth will moderate this year from very strong 4.7% in 2018 as the first section of the Bar-Boljare highway project nears completion and economic growth in the EU economy eases. The agency expects the public debt to peak at 63% in 2020 and start declining after the completion of the section. S&P said that risks related to the highway project involve the construction of sections to the Serbian border and the coastline. The agency noted that the government plans to develop those sections through a public-private partnership (PPP) model but stressed that the budget could still be exposed to debt-type risks as PPP contracts usually involve debt assumption clauses or a minimum usage guarantee. S&P also said it remains skeptical that the targets outlined in the government’s fiscal consolidation plan will be reached. The agency added that the problems related to Atlas Banka and Invest Banka do not pose a significant risk to the stability of the banking sector.

S&P said it may take negative rating action if the government fails to implement its planned fiscal consolidation measures and prevent a meaningful fiscal deficit reduction over the medium term. The agency could also take negative action if FDI inflows dry up or pressures emerge from the tightening of the global monetary policy. On the other hand, the agency said it may take positive rating action if the ongoing tourism, infrastructure and energy projects produce better-than-expected results and help reduce external imbalances.

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