What will be the real decline of the Montenegrin economy this year will be seen more clearly during June, when there will be a somewhat more realistic picture of tourism, because revenues from that activity are key to the assessment of the entire economic activity. It is ungrateful to give forecasts now, because even if Montenegro opens its borders faster, it will not have an effect if the countries of the region and other economies that affect tourist traffic are not opened.
This was pointed out to "Vijesti" by opposition economists Raško Konjević and Aleksandar Damjanović and economist Jakov Milatović, regarding the assessment of the World Bank (SB).
SB assessed that the coronavirus pandemic is pushing Montenegro's economy into a sharp recession, and that this year there may be a drop of 5,6 percent if the country loses a third of its income from tourism, and if it loses half of that income - it will be in the minus of nine percent. The IMF forecast a decline of 9 percent.
Milatović explains that due to the medical context in which the economic crisis occurred, the tourism sector is one of the most affected, that it contributes up to 20 percent to the economic activity in Montenegro and that the income from that activity is key to the assessment of the entire economic activity.
"In a situation of great uncertainty, it is difficult to say something with certainty about assumptions about future developments in the tourism sector, that's why many institutions decide to present different scenarios".
Milatović assessed that the intensity of the current crisis is similar to that of 2009, and that a nine percent drop in the economy would be the biggest since the crises of the early nineties.
"It is good to see that the economic decline of nine to 10 percent is the basic scenario, and not the negative IMF scenario for Montenegro and other countries with a similar structure of economic activity and high dependence on tourism, such as Croatia and Greece. This means the assumption of a decline in the tourism sector of 50 percent".
Questionable debt sustainability
Milatović explains that in the April report, the IMF forecast a budget deficit for 2020 in the amount of about 10 percent of GDP, and taking into account the IMF's assumptions about inflation of slightly less than one percent and recession of almost nine percent, the newly created situation can lead to the growth of public debt in 2020 to the level of about 90 percent of the gross domestic product (GDP).
"This situation will once again focus on the issue of the sustainability of the public debt and probably result in additional consolidation of public finances in the future. Unfortunately, it seems inevitable. One of the consequences of the decline in economic activity due to the newly created situation is the decline in tax revenues. At the same time, Government measures to mitigate the consequences of the economic crisis, in terms of supporting the liquidity of companies or direct assistance to social categories, increase budget expenditures. Let's face it, this expense is worth doing. However, this means that the difference between budget revenues and expenditures, which was negative in Montenegro even before the crisis, will increase. This gap will have to be covered through new debt, which will increase the public debt".
The public debt of Montenegro, according to official data from the Ministry of Finance, amounted to 3,78 billion euros at the end of last year, which is 77,2 percent of the preliminary GDP for that year of 4,9 billion. It is estimated that, with the new debt due to the coronavirus, it will be around 83 to 90 percent, and in one of the calculations, even more. Bringing the public debt closer to GDP will also mean higher interest rates on new borrowing, further fiscal consolidation through new taxes on citizens and the economy, a possible reduction in wages, the sale of some state resources for its return...
The government announced that 508 million will be provided, of which 455 million will be through loans, and the rest from donations. Based on the SB guarantee, 250 million will be borrowed, and part of the missing money will be provided through credit support from the IMF and the EC.
Finance Minister Darko Radunović said that he hopes that forecasts of a nine percent drop are "too pessimistic".
"Along with the decline in GDP, the share of public debt will also increase, and the necessary new debt will increase it in nominal terms, so I am afraid that the realistic approach is that the debt will come close to almost XNUMX% of GDP," stressed Konjević ( SDP).
Konjević pointed out that Croatia, which is tourist-oriented and a stronger tourist destination, is counting on a drop in tourism that is greater than 50 percent compared to last year.
"Unfortunately, the estimates of the IMF and the World Bank are, I'm afraid, realistic if the current estimates of the tourism industry for this year remain in force. There will be a decline in other areas as well. Clearer estimates will be available during June, when there will be a more realistic estimate of tourism for this year," Konjević pointed out.
Damjanović: Joint agreement of the region on opening borders
Independent MP Aleksandar Damjanović pointed out that the drop in GDP will predominantly depend on the impact of the pandemic on the tourist season.
"Estimates about the decline of Montenegrin GDP this year depend predominantly on the duration of the pandemic, that is, on its impact on the tourist season. Tourism with accompanying activities of transport and catering has a dominant influence on GDP, especially bearing in mind the multiplier effect of tourist consumption. The extent to which GDP will fall is ungrateful to estimate, because even if Montenegro opens its economy and tourism quickly, it will have no effect if the economy of the region, that is, the EU and countries that have a dominant influence on our tourist traffic, is not opened. In communication with the countries of the region, it is necessary to define, if possible, some common horizon of opening the borders for the flow of people in order to save the upcoming season as much as possible, Damjanović assessed.
He added that bearing in mind that the pandemic will affect the change in people's behavior and habits, in terms of reducing long and distant tourist trips, the negative consequences for tourism will be long-term, which indicates that it is necessary to change the structure of the Montenegrin economy.
Car accessibility will be important to attract tourists
Milatović says that it is interesting that Croatia, Greece and Montenegro, whose economies largely depend on the tourism sector and for which the IMF has a similar recession forecast, have different views on the dynamics of their economic activities.
"In the economic forecasts of a few days ago, the Croatian government confirmed the words of the IMF about the decline of the economy by more than nine percent. Unlike them, the governments in Montenegro and Greece have a more optimistic attitude than the IMF, and according to their latest announcements, they expect a drop of around 5%," said Milatović. He explained that Croatia's car accessibility from its main tourist markets (Germany, Austria, Slovenia, Hungary and the Czech Republic) can be a facilitating factor.
"This is to some extent also true for Montenegro, which, although it is not as easily accessible as Croatia in terms of road infrastructure, still draws the majority of its guests from the countries of tourism (Serbia and Bosnia and Herzegovina), unlike Greece, whose two main tourist markets are Germany and Great Britain largely conditioned by air transport", explained Milatović. He added that the crisis revealed the risk and economic consequences of excessive concentration of economic activity in the tourist sector, and that further economic development should be based on a policy of better diversification of economic activity.
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