Montenegro, borrowing conditions this year will be worse than in previous years

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It is certain that the conditions under which the Government will borrow this year will be worse than in previous years, and in addition to external events, what will further worsen the borrowing conditions of Montenegro is certainly the very poor state of public finances due to excessive current spending, announced Pobjeda, director of the Institute. For Strategic Studies and Projections (ISSP) and associate professor of the University of Donja Gorica (UDG), Dr. Jadranka Kaluđerović.

The Ministry of Finance Informed the editorial office of Pobjeda that this government department actively communicates with all potential partners with whom credit arrangements could be concluded, taking into account first of all the credibility of the institutions, but also the conditions on the world capital market. According to the Ministry, discussions with domestic and foreign banks are ongoing, and all details related to creditors and the conditions of borrowing will be known to the public after the conclusion and realization of the arrangement.

– Bearing in mind that the world’s political and economic scene is still unstable and unpredictable, that inflation is still high, and that the energy market and the largest inputs in production continue to suffer major fluctuations, the environment in which we are negotiating is certainly even more difficult, and the goal we want to achieve the most favorable arrangements with credible partners who will protect the reputation of Montenegro as a reliable investment destination – said the Ministry of Finance.

The budget law for this year defined the missing funds for financing the budget in the current year at the level of EUR 705 million. It was announced that deposits and funds from existing credit arrangements, as well as funds from new debt, will be used to finance the missing funds. It is defined that during this year the state can borrow up to EUR 600 million through credit arrangements with international financial institutions, domestic and foreign banks, through the issuance of government bills and bonds on the domestic and international market, as well as by concluding bilateral or other credit arrangements.

Borrowing conditions

The Ministry of Finance states that they will be able to talk about the specific conditions of borrowing (interest rate, repayment term, grace period…) only after the conclusion and implementation of the arrangement “so as not to jeopardize the negotiating position”.
– The final conditions under which borrowing will occur are influenced by many factors, many of which are predetermined (current global parameters, inflation, etc.), but there is considerable interest from financial institutions in concluding a contract with Montenegro, and we expect that we will reach the optimal solutions for financing the needs of the budget – it was ordered from the department headed by Aleksandar Damjanović.

ISSP Director Jadranka Kaluđerović stated that it is very difficult to say in this period under what conditions the Government will borrow this year, because, as she says, such analyzes require detailed data on the levels of the principal, interest, interest rates and maturity dates of the current credit debt.

– In addition, an assessment of what would be the available opportunities on the banking market is also needed. In any case, lower interest rates, a longer grace period and a longer repayment period are the conditions under which every country wants to borrow. It is certain that the conditions under which the government will borrow will be worse, and in addition to external events, what will further worsen the borrowing conditions of Montenegro is certainly the very bad state of public finances due to excessive current spending – said Kaluđerović.

Rising interest rates

She added that there is an increase in interest rates globally, so the FED (American Central Bank, Federal Reserve) raised interest rates, and last week the European Central Bank raised interest rates by 0.5 percentage points, and so did the Bank of England.

– This means that there will generally be an increase in interest rates on both loans and deposits in the coming period. Also, the European Central Bank has announced that there will be a new interest rate increase in March. This, of course, affects the growth of interest rates for all investors, both domestic and foreign, so that the state will probably borrow under worse conditions than the ones it used to borrow in the previous period – Kaluđerović pointed out.

She states that the state will probably manage to borrow up to the stipulated amount.

– It seems that the state is not yet in the zone where it would not be able to borrow, but it is more important under what conditions the state will borrow and whether, in order to provide the missing funds, it will achieve the most favorable borrowing conditions that it can achieve – said Kaluđerović.
She added that, according to the data for nine months of last year, almost 91% of the national debt is foreign debt, and about nine percent is domestic debt. Kaluđerović announced that among the foreign creditors, the biggest creditors are the Chinese bank, the International Bank for Reconstruction and Development (IBRD) and the European Investment Bank (EIB). She reminded that in the previous period, the Government also made several bilateral credit arrangements.

– It can be expected that cooperation with large international creditors will continue in the coming period and that they will also have a dominant participation in new borrowing. On the other hand, domestic banks have a significant amount of liquid assets, so it is possible to continue credit arrangements with domestic banks – said Kaluđerović.

Public finances

The Ministry of Finance believes that public finances are not at risk at the moment.

– At this moment, taking into account the state of deposits, as well as the collection of revenues during January, we can say that there is no fear that public finances will be threatened, especially if we bear in mind that we have planned the revenue side of the budget for the current year more than conservatively – claim the representatives Ministries.

Answering the question of whether there is a danger that Montenegrin public finances could be threatened if the Government fails to borrow to a sufficient extent, Kaluđerović announced that she could service the debts she has in the coming period, it is important that the Government also takes into account the deficit of the current budget and not to allow it to grow, that is, as she stated, it is necessary to take into account which policies are adopted and what their impact is on the budget.

– This is a category that the Government can now influence and thereby limit future debts because it cannot influence the previous ones. Therefore, if it fails to borrow the planned amount, the Government will be forced to rationalize state spending, for which there is certainly room – said Kaluđerović.

Representatives of the Ministry of Finance state that credit support of EUR 160 million from the World Bank is certain.
– We need to fulfill the conditions, which are quite demanding, and we expect the realization of the first tranche of 80 million euros during the current year, and the rest in the next year – said the Ministry of Finance.

Kaluđerović pointed out that the World Bank is clear when it comes to conditions and that financial institution “first of all wants to limit consumption and reduce the budget deficit”.

– Creditor institutions require clear fiscal discipline. Those conditions, usually in a situation where the state is in an unfavorable financial position and when the functioning of public finances is threatened, refer to strict limits on spending, especially spending without coverage – said Kaluđerović.

The arrangement with the IMF often implies a reduction in wages and pensions

The Ministry of Finance points out that now there is no need for an arrangement with the International Monetary Fund (IMF), but they do not rule out that possibility either.

– At the moment, there is no need to borrow from the IMF, but, bearing in mind that the international market is still unstable and unpredictable, in the event of additional shocks, we will also consider that possibility, which would bring additional security for Montenegrin finances for the financing of all needs , but also acted as a positive signal to foreign partners about the reliability of Montenegro – said the Ministry of Finance.

Kaluđerović believes that the arrangement with the IMF is still quietly mentioned, but, as she said, it is rather due to the fact that the IMF sets strict conditions for arrangements that go in the direction of rationalizing consumption in order to consolidate finances.

– This often means freezing and even reducing expenditures for wages in the public sector, pensions, as well as reducing numerous other forms of current spending. The question is how much anyone in Montenegro is currently ready to enter into such an arrangement – warned Kaluđerović.

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