The drop in the value of the dollar against the euro by about 12 percent since March last year is manifold good news for the Montenegrin economy - potential liabilities from highway loans have decreased by about 100 million euros, Montenegro is in a better position for insurance negotiations from the currency risk, as well as for the announced negotiations with the Chinese Exim Bank on the rescheduling of credit obligations that begin to mature in July this year.
The director of the investment company "Bull and Bear" Aleksandar Jovović noted that in order to fight the recession caused by the corona virus pandemic, at the beginning of last year, the American central banking institution (FED) took a series of extraordinary measures from March last year. These, Jovović added, resulted in a programmed weakening of the dollar in order to stimulate domestic growth and the competitiveness of export products.
The FED has announced that it will have such measures as long as the economic crisis lasts, that is, until 2023 at the latest.
According to data from the Ministry of Finance, 19 percent of the public debt refers to loans and borrowings in dollars.
The value of the loan of 944 million dollars for the highway in March last year was 870 million euros, and according to the current exchange rate, it is worth about 770 million euros.
Barska i Crnogorska plovidba or the Government on their behalf should pay the installment of the loan for the purchase of ships in the amount of five million dollars in ten days, which will now be about half a million euros lower than in January last year.
In July, the government should pay the first semi-annual installment for the highway of 33,5 million dollars, the value of which will be about three million euros less than at the exchange rate before the pandemic.
19 percent of the public debt refers to loans and borrowings in dollars
The drop in the dollar exchange rate significantly reduced the existing public debt. At the end of March last year, the debt to Exim Bank for the amount of loans withdrawn up to that time was worth 685 million euros, and in September it amounted to 664 million euros, although between those two periods another 22 million dollars were withdrawn. If the exchange rate had remained the same, the public debt would have been higher by around 40 million euros.
Despite the significant drop in the dollar, the value of the highway loan in euros has not yet returned to the amount from October 2014, when the then Government took a dollar loan for the construction of the first section of the highway.
According to the exchange rate at the time, this amount was worth 743 million euros, and now it is 770 million euros. If the dollar fell against the euro by another five percent, the value of the loan would be lower than when it was taken.
Repayment of the highway loan starts this year and will last 14 years, so the exchange rate may change several times. At that time, the government did not take out currency risk insurance, and now is the best time for the new government to do so.
Barska i Crnogorska plovidba or the Government on their behalf should pay the installment of the loan for the purchase of ships of five million dollars in ten days, which will now be about half a million euros lower than in January last year
The first section of the highway was supposed to be completed in May 2019, but according to new announcements from Monteputo, it can be expected in the fall of this year. This means that the state lost toll collection for about two and a half years.
In order to bring down its currency, the FED injected 2.930 billion since March
Jovović says that by increasing the money supply in circulation by buying government bonds from banks on the secondary market, the FED encouraged the recovery of the economy during the mortgage loan crisis in the period 2008-2012. years. From March 11, 2020 to November 17, 2020, the FED injected 2.930 billion dollars into the system through this instrument of monetary policy.
The FED's goal was to increase the money supply and reduce interest rates by injecting money into banks so that they could lend to businesses and consumers at the lowest possible interest rates, all with the aim of increasing economic activity.
"Another significant instrument of monetary policy is keeping the reference interest rate close to zero, also in order to maintain credit activities. At the end of 2020, the FED announced that it will continue to buy government bonds until the economy achieves 'significant and sustainable' growth, and it was also announced that will keep the reference short-term interest rate close to zero until 2023, which may lead to a further weakening of the dollar in the coming period. What you need to know is that when the economy achieves sustainable growth, the FED will begin to gradually raise the reference interest rate and sell on the market the acquired assets (government bonds) in order to reduce the money supply, which, along with the growth of the American economy, can reverse the current trend and lead to a strengthening of the dollar exchange rate against the euro," Jovović pointed out in a statement to "Vijesta".
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