The FINANCIAL — The World Bank supports a package of reforms to strengthen public finance and financial sector resilience in Montenegro through a Euro 80 million guarantee approved on December 20.
The reforms are supported through a Policy-Based Guarantee (PBG) – a first in a programmatic series of two operations – which will aim to secure two to three times larger private finance and allow for orderly refinancing of the existing debt liabilities towards commercial creditors.
The PBG underpins the authorities’ reforms for orderly fiscal adjustment as committed in the 2017-2020 Fiscal Strategy and builds on the Government Economic Reform Program for 2017-2019. It also supports reforms of the financial sector and the public finance management, according to the World Bank.
“We welcome the Government’s commitment and actions to put Montenegro back onto a sustainable macro-fiscal trajectory,” said Emanuel Salinas, World Bank Country Manager for Montenegro. “I am confident that Montenegro, with support from the World Bank, and other development partners, will overcome today’s challenges and achieve strong sustained and inclusive growth based on private investment and jobs over time”.
By the end of the program, it is expected that tax revenues will increase, and overall government spending as a ratio to GDP will decline from an excessive level of 47 percent of GDP. Additionally, labor force participation will increase from one of the lowest shares across European countries of less than 55 percent. The share of non-performing loans is expected to decline further and banking supervision and resolution frameworks will be strengthened in line with the Basel Core Principles and EU Bank Recovery and Resolution Directive.
Some of the reform measures supported under the program relate to reduction in government officials’ wages, introduction of centralized procurement, regulation of supervision of the non-banking financial sectors, as well as reforming the pharmaceutical market aiming to strengthen access and affordability. The program also supported increase in targeted child benefits at the expense of eliminating the lifetime benefits for mothers of three and more children; mothers were compensated and it is expected that they will return to the labor market, which will benefit from their skills and talent.
“Without the reforms supported by this Program, the fiscal adjustments would be abrupt and likely more harmful for the poor”, said Sanja Madžarević-Šujster, World Bank Senior Economist and one of the Task Team Leaders of the program.
“Reducing the deficit will not be easy, but is of utmost urgency given the need to reassure markets and allow for a successful rollover of existing obligations which amount to around 16 percent of GDP a year”.
The World Bank portfolio of active projects in Montenegro now includes 6 programs, totaling US$229 million. Areas of support include energy efficiency, education, agriculture, environment and revenue administration.
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