In the final proposal of the Fiscal Strategy of Montenegro until 2027, the Ministry of Finance, at the request of the American Chamber of Commerce in Montenegro, added the chapter "Risks for the achievement of macroeconomic and fiscal projections", which consists of three sentences and one table, but without measures of what if it happens negative scenario.
The final proposal of the Fiscal Strategy, which includes a number of changes to laws and measures from the "Europe Now 2" program, was submitted by the Government to the Parliament for consideration four days ago, on September 10, after which it was published on the Parliament's website. In that proposal, there is a chapter "Risks for the achievement of macroeconomic and fiscal projections", which did not exist before, and which is otherwise a mandatory part of this document. This "chapter" covers less than one page, out of a total of 118 pages of the strategy.
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During the public debate on the draft Fiscal Strategy, the American Chamber of Commerce in Montenegro (AmCham) submitted to the Ministry of Finance a suggestion that this document does not contain a risk analysis, as well as an analysis scenario, which would include all possible negative events that could affect if not achieve the set goal of making the state finances and the pension system stable after the abolition of a large part of pension insurance contributions.
By reducing the contribution from 20,5 to 10 percent of gross earnings, as stated in the draft of the Fiscal Strategy, the deficit of the PIO Fund for the payment of pensions in the next year will be increased from the current 167 million to 383 million euros, while through the increase of a series of taxes, new measure, growth of consumption and economy, expects an increase in income by 240 million euros, which would be used to cover the deficit of the PIO Fund.
The risk analysis and analysis scenario were supposed to show whether there are risks to the realization of that plan and what will need to be done if events with a negative impact on that scenario occur.
AmCham: The analysis should have been more comprehensive
From the American Chamber of Commerce, when asked by "Vijesti" whether they were satisfied with the risk analysis published in the final document, they said that there is no clear binding methodology for its preparation, that it is ungrateful to appreciate the quality of the performed analysis, but that it should have been more comprehensive.
"During the public debate on the draft Fiscal Strategy, the American Chamber of Commerce pointed out the need for a risk analysis and accompanying scenario analysis to be an integral part of this extremely important document. Since there is no pre-defined and binding methodology for creating a risk analysis and the accompanying analysis scenario that the Government of Montenegro, i.e. the Ministry of Finance, was obliged to apply when creating this strategic document, it is ungrateful to appreciate the quality of the analysis performed within the chapter "Risks for realization macroeconomic and fiscal projections". Nevertheless, we are of the opinion that a comprehensive scenario analysis should contain the identification of key risks, the assessment of the probability of their occurrence with the quantification of the effects, and the definition of measures that can serve to minimize risks in each of the identified scenarios. In this sense, we consider it necessary to create a methodology of risk analysis and scenario analysis, on the basis of which the quality of future strategic documents would be significantly improved", stated "Vijesti" from this organization that gathers the most important investors and employers in Montenegro.
In the report from the public discussion, where this remark of the American Chamber of Commerce was mentioned, the answer of the Ministry of Finance was also given that the suggestion is respected and that the final document will contain a chapter of "relevant macroeconomic and fiscal risks".
Three sentences and a table
Now the chapter "Risks for the realization of macroeconomic and fiscal projections" contains a three-sentence introduction and a table in which possible surprises that would have a positive impact on public finances are listed on the left, and negative expectations are on the right.
"The planned realization of macroeconomic and fiscal indicators in the medium term is based on current plans and policies, the assumptions of the economic cycle in the EU, along with the foreseen reform measures that will realize the basic scenario of the forecasted trends. However, due to the extremely uncertain context of the domestic and external environment in which economic activity takes place, the projected macro-fiscal indicators are subject to changes due to the potential materialization of identified risks to macroeconomic and financial stability. Therefore, the key risks that could affect growth prospects and macroeconomic stability in the coming period are given below", it was stated in the introduction of this chapter.
Four negative risks
Four examples are listed as possible negative events that could affect the unsustainability of public finances.
"Geopolitical events can negatively affect the entire world economy, and consequently, the Montenegrin economy; the delay in the implementation of certain measures aimed at increasing public revenues may affect the increase of the projected budget cash deficit and public debt in the medium term; due to the slowdown of the European economy and persistent inflationary pressures at the global level, the vulnerabilities of the domestic economy remain strongly expressed. The effects of significant changes in the economic trends of the EU are dominantly related to the potentially lower growth of tourism in Montenegro, investments and consumption, and consequently to lower economic growth; climate change can have effects on the dynamics of economic growth in the medium term, due to the impact on the sectors: tourism, agriculture and energy", is all that is written about possible negative impacts.
It is not stated what the Government will do in the event that one of these negative risks occurs, whether it will return contributions again, reduce budget expenditures or take on debt.
Five possible positive surprises
The second part of the table lists five possible events that would have a positive impact on the budget and public finances.
"By receiving the Report on the Assessment of the Fulfillment of the Temporary Criteria for Negotiation Chapters 23 and 24 (IBAR), preconditions are created for accelerating the process of Montenegro's accession to the European Union, and thus obtaining EU financial aid for Montenegro and the use of EU structural funds, which strengthens the country's economy and the implementation of structural reforms accelerates; intensification of activities to reduce the informal economy, through increased inspection supervision and more efficient institutional coordination, will have a positive impact on public revenues; the potential revenue collection based on the concession for the Airports of Montenegro can influence the increase of total public revenues in the medium and long term; by abolishing certain tax expenditures for the corresponding groups of taxes, conditions are created for a potentially higher collection of budget revenues; The legalization of illegally built buildings will create conditions for increasing public revenues and increase the degree of fiscal and budgetary discipline", it was stated in the positive part of the table.
The legalization of illegally built buildings is also mentioned here, although that income is the collection of utilities - municipal, not state income.
AmCham: High dependence on tourism, imports and consumption, introduces risks
The American Chamber of Commerce, in a remark from the public hearing addressed to the Ministry of Finance, states that the Draft Fiscal Strategy "does not contain a risk analysis, as well as a scenario analysis, which is extremely important considering the sensitivity of the Montenegrin economy to external shocks, and the high import dependence, and also the dependence of the growth of economic activity on the demand side".
"It is necessary that the aforementioned analyses, as well as the analyzes that were made to assess the effects of individual measures, be an integral part of the Fiscal Strategy Draft in the form of appropriate attachments, which would facilitate the assessment of its sustainability and at the same time simplify the understanding of the basic assumptions on which the estimated effects are based. Of course, in this way we do not claim that they were not done, but they are not publicly available, and we call for them to be part of the material that makes up the fiscal strategy", stated in this remark.
In the explanation, this organization of investors states that the Montenegrin economy has gone through several global shocks in the recent past, which had a strong impact on macroeconomic conditions.
"Taking into account the high dependence on tourism, which together with related industries makes up approximately 30% of Montenegro's GDP, the high import dependence due to the weak participation of domestic production, as well as the dependence of the realization of the fiscal strategy on the realization of the growth of economic activity, it is clear that when creating strategic documents, special attention should be paid to risk analysis and the creation of appropriate scenario analysis", stated the American Chamber of Commerce.
They point out that the strategy could have additional value if the business community was timely involved in its creation and quality preparation of all analyses.
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