According to the new credit rating of the agency "Standard & Poor's", Montenegro is in the last place in the region and Europe, where it is tied with Bosnia and Herzegovina (BiH), while according to the standards of the agency "Moody's" it has a better rating than BiH, and since last week and by half a step better than Albania, with which it was tied until then.
This is shown by the comparative data of these two agencies and the news agency "Bloomberg" from last week. In addition to the rating code, the credit rating also has an outlook label - positive, stable or negative. For example, if it is positive, it means that its growth is expected in the next measurement, while stable means that it will most likely remain the same, and negative means that there is a risk of its decrease.
"Standard & Poor's" (S&P) increased Montenegro's credit rating from B to B+ at the end of August this year with a stable outlook, but this new rating is also in the group marked with "speculative creditworthiness, high credit risk". Before that, Montenegro had the lowest credit rating according to these standards, because neighboring Bosnia and Herzegovina already had a B+ rating for a year.
And with this increase in the credit rating from August, according to S&P, Montenegro is four steps below the investment credit rating, when investors have high confidence in those countries, which also affects their debts and significantly lower interest rates.
Montenegro had this same credit rating according to S&P in 2014 and 2017, while it had a step better BB- in 2012 and 2013. It had a better credit rating of BB in 2010 by two steps, and the best rating, three steps higher, was achieved in 2007 and 2008. During the period of the economic boom at that time, Montenegro was only one step away from the investment credit rating.
According to the current rating of Montenegro by S&P, Albania and North Macedonia are one step above Montenegro, while Serbia's rating is three levels higher, Croatia's is seven, while Slovenia's is ten levels above.
According to "Moody's" agency, Montenegro is now rated Ba3 and has a stable outlook, three steps up to investment credit rating. Montenegro was on this same rating in 2011, as well as in 2009 and 2014, with negative prospects.
The best rating according to "Moody's" was Ba2008 in 2, which is a step above the current one. At the measurement in March of that year, along with the rating, there were stable prospects, but in December of the same year, they were changed to negative, due to hints of an economic crisis.
According to this agency, Serbia has a rating of Ba2, one level above Montenegro, with positive prospects for its future growth. Croatia is four levels above and Slovenia six. "Moody's" does not have a rating calculation for Macedonia, while neither it nor S&P has done a rating for Kosovo so far.
"Moody's" in the explanation of the decision to increase the credit rating of Montenegro from last week states that it came about because of last year's good results, economic growth, reduction of the budget deficit, halting the growth of public debt, progress in negotiations on joining the EU, political stability as well as due to obtaining financial support from the EU for the continuation of highway construction.
"The upgrade of Montenegro's rating to Ba3 from B1 reflects improvements in its credit profile as a result of strong medium-term growth prospects and a material improvement in fiscal strength due to a lower level of public debt and reduced fiscal risks related to the completion of four sections of the Bar-Boljara highway. Substantial public and private investments combined with the implementation of EU-related structural reforms in the context of the new growth plan for the Western Balkans support solid medium-term growth prospects. Moreover, the recent acceleration of reform progress within the EU accession process, with the help of a more stable political environment, supports institutional quality", the agency stated.
They indicate that these positive trends balance with the remaining challenges and risks due to the tax reform, which is why they rated the outlook as stable rather than positive.
“The stable outlook balances these positive credit trends with remaining challenges. These challenges include risks to the fiscal position posed by the costs of the recently announced reform package, significant refinancing needs in the coming years, as well as potentially slower-than-expected progress in the implementation of EU-related reforms," the agency said.
Can compensatory measures compensate for the loss in the PIO Fund?
Possible risks for the future period, as explained, relate to the fiscal position presented by the recently announced reform package, large upcoming refinancing needs and potentially slower progress in the implementation of EU-related reforms.
"As part of the fiscal strategy for 2024-27, the authorities plan to introduce the so-called 'Europe Now 2' program, which entails increasing the minimum wage (depending on the level of education) and pensions, reducing the tax burden on labor, and equalizing VAT rates for hospitality sector. While potentially stronger-than-expected domestic demand points to the possibility that the fiscal performance for 2025 will be better than we currently forecast, it is unclear whether compensatory revenue measures will be sufficient to offset the budgetary costs of the reforms," the agency said.
The "Europe Now 2" program envisages a reduction in pension insurance contributions from 20,5 to 10 percent of gross earnings, which will cause the deficit of the PIO Fund to grow to 400 million per year from next year, and the hole is planned to be covered by lower increases in other taxes and excise duties. That is, they doubt that these compensatory revenues will replace the deficit in the PIO Fund.
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