Press Release No. 20/246

IMF Executive Board Approves US$ 83.7 Million in Emergency Support to Montenegro to Combat COVID-19 Pandemic

June 24, 2020

• The global outbreak of COVID-19 has weakened the outlook for Montenegro’s economy and created immediate financing needs.
• To address Montenegro’s urgent balance of payment needs, the IMF has approved financial assistance equivalent to US$ 83.7 million (Euro 74 million) under the Rapid Financing Instrument.
• The immediate challenge is to mitigate the effects on the economy and households most affected by the crisis.

WASHINGTON, DC – The Executive Board of the International Monetary Fund (IMF) today approved SDR 60.5 million (about $US 83.7 million or Euro 74 million, 100 percent of quota) in emergency assistance for Montenegro under the Rapid Financing Instrument (RFI) to meet urgent balance of payment needs stemming from the outbreak of the COVID-19 pandemic.

The RFI provides rapid financial assistance to member countries facing an urgent balance of payment needs, including those arising from commodity price shocks, natural disasters, conflict and post-conflict situations, without the need for a full-fledged economic program or reviews.

The COVID-19 pandemic has weakened Montenegro’s economic outlook. With tourism accounting for around a fifth of the economy, Montenegro could experience the largest contraction since independence. GDP is projected to decline by nearly 9 percent in 2020 (11.7 percentage points below the pre-virus baseline), but GDP is expected to grow by 5.2 percent in 2021 and gradually converge to potential.

To mitigate the impact of the pandemic on the economy, the Montenegrin authorities are implementing a package of fiscal and financial sector measures to sustain economic activity during the crisis, including measures to preserve employment, an extension of social benefits, and provision of liquidity to the economy.

Following the Executive Board discussion, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, made the following statement:

“The global COVID-19 shock has hit the Montenegrin economy hard and created urgent balance of payments and fiscal financing needs. The authorities implemented swift and decisive measures to contain and mitigate the spread of the pandemic, which enabled a relatively speedy reopening of the economy. Nevertheless, given the uncertainties surrounding the recovery of tourism globally, the economy could take a few years to fully rebound to pre-pandemic GDP levels.

“Fiscal and financial sector policies have been accommodative in response to the pandemic. A sizable temporary increase in the fiscal deficit to accommodate higher public healthcare needs and targeted transfers to firms and households affected by the pandemic is appropriate. Starting next year, the authorities need to restore fiscal space and steadily lower public debt by resuming their ambitious fiscal consolidation program started in 2017. In this regard, avoiding large capital outlays — with particular restraint in launching and implementing large projects which could jeopardize debt sustainability — is crucial.

“Financial sector policy measures to ease the strain on borrowers would need to be continually recalibrated as circumstances evolve. At the same time, authorities should stand ready to take additional measures to preserve financial sector stability, if necessary. When conditions permit, the authorities should resume their planned asset quality review of the banking system.

“The IMF emergency assistance under the Rapid Financing Instrument will help provide the much-needed resources to address the urgent balance of payments needs and support essential healthcare expenditures. The support of other international financial institutions and development partners is expected to close the remaining financing gaps, ease the adjustment burden, and preserve the long-term economic growth of Montenegro.”

More information

IMF Lending Tracker (emergency financing request approved by the IMF Executive Board)

https://www.imf.org/en/Topics/imf-and-covid19/COVID-Lending-Tracker

Policy tracker: economic responses to COVID-19 by 193 countries

https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19

IMF Executive Board calendar

https://www.imf.org/external/NP/SEC/bc/eng/index.aspx