Economic analyst Zarija Pejović believes that the Government should enter into an arrangement with the International Monetary Fund (IMF) in order to return obligations based on the public debt due in the next three years in the amount of 1,23 billion euros.
"Previously, I proposed that the Government create an arrangement with the IMF and realize obligations based on public debt with tranches from the IMF, which would reduce interest expenses in total public spending, which is certainly a benefit. When public finance revenues exceed current consumption, then the reduction of public debt should begin. Unfortunately, the arrangements with the IMF are not the happiest circumstances for the economy and society as a whole, but we are talking about a forced situation, when a total of 1,23 billion euros need to be paid within three years," Pejović assessed for "Vijesti".
Pejović said that if the Government decided on an arrangement with the IMF, the amortization period should be as long as possible so that the installments would not "suffocate" domestic public finances.
This year, the Ministry of Finance should prepare a Debt Management Strategy that will contain an analysis of the current state of public debt, as well as the trend of debt reduction in the coming period. That document should have been adopted last year.
According to the Government's program of economic reforms from 2018 to 2020, the public debt at the end of last year was 2,75 billion euros or 65,46 percent of GDP.
"Research shows that when a developing country exceeds some 30 to 35 percent debt in relation to GDP, it is at risk of defaulting on credit obligations. I am not aware of an example of a country that managed to rehabilitate the public debt with an import-export coverage rate of only 17 percent. The good side is that the government managed to reduce the current deficit. However, it is bad that the fiscal burden is distributed indiscriminately, with the introduction of excise taxes for fuel, higher VAT", explained Pejović.
In this way, as he added, the real earnings and purchasing power of the population are reduced, which reduces demand and the end result is limited economic growth.
"The poorer categories of the population are particularly affected by such a fiscal strategy," Pejović pointed out.
Independent MP Aleksandar Damjanović told "Vijesti" that it is very difficult to talk about precise indicators and reliable predictions of the dynamics of growth, that is, the repayment of the public debt, during the next period. This is because, as he explained, very unreliable institutional and statistical bases for determining the amount of nominal GDP and its growth rate, on which all other macro-economic parameters depend, and which can be purposefully "adjusted" in the system created in this way.
Damjanović reminded that the Law on Budget and Fiscal Responsibility defines that the debt management strategy is adopted by the Government, with the opinion of the Central Bank (CBCG), and that in mid-June 2015 the Ministry of Finance announced the debt management strategy for the period 2015 to 2018.
"According to the available information, and in accordance with the legal obligation, that strategy was not adopted by the Government, nor was the CBCG's opinion submitted on it. The status of that strategy is unclear, so the process of planning a new strategy should be viewed in that context," said Damjanović.
Damjanović pointed out that the state should be extremely careful in terms of finding the optimal model for settling obligations based on past debts. According to him, current budget allocations for interest payments (which are almost always above planned), nor signed but still unrealized project loans, nor the amount of domestic debt that is not final due to unrecorded future obligations based on restitution, should not be marginalized.
"According to official data from the Ministry of Finance, the net public debt at the end of 2016 was at the level of 2,5 billion euros or 67 percent of GDP, and at the end of the third quarter of last year it increased by at least 140 million. This means that the public debt has practically doubled in the past seven years. It should also be borne in mind that the amount of guarantees issued, excluding the past year, is about 590 million, which violates the legal limit according to which the total amount of guarantees cannot exceed 15 percent of GDP, and the authorities are silent about this, with a great risk that one part of them falls on the budget," said Damjanović. Damjanović said that they are calling for extra caution due to the pressure of repayment of principal and interest based on the emission of Eurobonds from 2014 and 2015, which are due in the next two years.
"In addition to the rehabilitation measures that are in force because the Government exceeded the budget criteria, as well as the currency risk of the highway loan that has not yet been resolved, and almost half of the period since the beginning of the validity of the Preferential Loan Agreement with the Chinese Exim Bank has expired", he emphasized is Damjanović.
Tax reform would be good
"Factors that are also not taken into account, such as the announcement of new investments in the field of energy, the need to secure money for the purchase of shares from A2A, various "hidden" unplanned budget allocations, the unresolved status of problematic state-owned companies such as Montenegroerlanz, even assuming that the price sources of financing on the international and domestic financial markets will not change drastically, they indicate that the previously lightly announced option of "refinancing" the existing debt, that is to say its postponement for the next decade, should be carefully considered," said Damjanović.
According to Damjanović, this "refinancing" can be an easier choice for the current ruling group than the essential measures of redefining the budget and tax, and economic policy in general, which the government is afraid of because they cut the branch on which it has been sitting for twenty years.
"And precisely, only those fundamental reforms would lead to the desired goal, that the state lives on taxes paid by taxpayers, and not, as before, on foreign debt, which, at a much higher price, will be paid by the young generations, provided they remain in Montenegro and accept that irresponsible burden that we are leaving for them", said Damjanović.
The benefits of economic growth are not distributed fairly
Pejović said that if statistics are to be believed, we have economic growth, but which is not accompanied by employment growth, the more unemployment increases.
"So the question of inclusiveness of economic growth arises, if almost a quarter of the population is unemployed. More precisely, who reaps the benefits of that growth? So, we have an asymmetric situation, on one side, duties are indiscriminately introduced, while on the other side, the benefits of economic growth are unevenly distributed. I believe that such a model is not socially and politically sustainable. Why not introduce progressive taxation of the profits of legal entities instead of a higher VAT", said Pejović.
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