Interview of Vice Governor Miodrag Radonjić for “Dnevne novine“


Two to three years to reach the 2019 economic performance

This year, we can count on tourism recovery of 35 to 50 percent, resulting in four to seven percent GDP growth, Central Bank Vice Governor Miodrag Radonjić said in an interview with Dnevne novine.

If we consider this year’s 15 to 20 percent GDP drop, it will take us two to three years to reach the domestic economy’s 2019 performance, Radonjić points out.

DN: Montenegro recently borrowed 750 million euros by issuing bonds at the international market. Did the bond issue come at the right time to provide financial security?

Radonjic: The end of the year is the time for settling accounts, preparing financial reports and presenting performance objectively. Thus, in Montenegro’s case, what we all know but are afraid of will soon be apparent. It is a confrontation that our economy’s product declined by almost a fifth compared to last year. It will quickly be clear that even the most pessimistic forecast of a 14 percent GDP drop is not so bad compared to the achieved one. The Montenegrin economy’s structure, combined with the pandemic effects, gave its economic outcome. If we observe the issue of entering the international financial market through the abovementioned prism, we may easily conclude that the time of the last Montenegrin bonds’ realisation was very well estimated and timely. A later entry into the international market would clearly be worse for Montenegro.

The funds from this borrowing will enable the state to service all its obligations (salaries, pensions, social benefits, etc.) on time, even if the adverse pandemic effects continue in 2021. This is the most essential fact confirming this activity’s justification.

Apart from the fact that this issue strengthens the state’s financial position, it also has another, significant effect. It confirms that Montenegro has access, passage and a good position at the financial market. In a word, investors trust us.

DN: Is it encouraging for the state that the demand for our bonds was very high, despite an unfavourable credit rating?

Radonjic: The high interest recorded in the Eurobonds issuing process with the credit rating as it is, is a reflection of the security price, the money supply at the time, but also the investors’ expectations. The optimistic investors’ expectations have been reflected in the so-called risk appetite for our securities. The investors’ perspective on us now and on our future, at least seven years, and the risk they have taken is more important than the state of Montenegro’s current risk profile. It is one of the most important reasons for great interest.

DN: Can we expect a better credit rating of the country and when?

Radonjic: Credit rating repair a is neither a short-term job nor is it simple. It is a multi-layered, complex and comprehensive process that slowly yields results. However, we can highlight two key activities. The first would undoubtedly be the fiscal deficit reduction with the transition to the surplus, leading to the strengthened ability to settle credit obligations and reduce financing costs sustainably. It is a job that narrows your ability to spend the unearned. It introduces the process of constant monitoring and reviewing the spending rationality. Then, no less important is the strategic work on changing and improving the Montenegrin economy’s structure. It is the most challenging task that should translate the Montenegrin economic system from a state highly concentrated on service and tourism to a more balanced system with higher output share in agriculture, energy, and some industries where we have comparative advantages. The latter activity will expand the basis for collecting higher public revenues. We can count on a stronger fiscal and financial position in synergy with rational spending, which will undoubtedly be recognised through a better credit rating.

DN: The coronavirus pandemic has seriously deepened the world’s economic crisis, and it has not bypassed Montenegro either. Did Montenegro react timely to measures to help the economy? Would they be necessary for the future as well?

Radonjic: The pandemic not only shook the already fragile recovery from the previous economic crisis. I dare say, it launched a completely new, very unusual and atypical economic turmoil that would indeed not be described by traditional economic postulates. It will particularly not be possible to treat it with classical economic and monetary policy measures. What we live through today is only just its beginning, and the effects will affect us in the years to come. Starting from March 2020 until today, we have the phenomenon of an inverted yield curve on the world financial market. Historically speaking, they would predict a recession, and less often slowed economic growth. This anomaly of a longer-term and thus associated higher risk not bearing higher price, but vice versa, a more expensive short-term borrowing, clearly points to the short-term uncertainty degree. It should be taken into account that the conducting of unconventional monetary policy, and the connection of monetary policies of individual economic zones makes these typical rules less secure. Moreover, this partial inversion is not significantly expressed in the percentage difference, further supporting the thesis that investors expect an economic slowdown due to the pandemic, but not a recession.

Whether medicine responded with timely measures to a new, unknown disease, we cannot know. Still, we know it did the best it could with the available medicines and instruments. The same can be said for the executive and monetary power holders in Montenegro.

We had a set of Government measures and a range of CBCG measures that helped repair the total lockdown’s first hardest blows. These measures can be grouped into two groups: subsidies and relief based on public revenues redistribution, and monetary measures based on deferral in liabilities repayment, strengthening the systemic liquidity and relaxation on the risk side. We can confirm today that these measures, individually and together, have certainly mitigated the very severe pandemic consequences on the economic life in Montenegro.

Will there be a need to help the endangered in the future? We can certainly conclude it will, not only by extending the existing measures and facilities but also by creating new ones. This could be a kind of solidarity test of a modern man and his social communities. In this regard, we can expect a whole set of innovations in fiscal, monetary, social and economic development policy.

DN: Coronavirus has caused many problems in the global market. In your opinion, when could we expect stabilisation, and then the countries’ recovery, including Montenegro?

Radonjic: At the moment, it is impossible to estimate all the harmful consequences caused by this pandemic. Their scope will certainly exceed many expectations. It is very ungrateful to estimate when the pandemic will end. However, some goals are clear on the road to full recovery.

From a global perspective, we can conclude that there are high expectations from the vaccination process to be completed in 2021. If vaccination results in creating the necessary immunity, we can expect abolishing all restrictions on people’s free movement. People’s unhindered flow is the basis for many industries, especially tourism and transport, with a dominant share in Montenegro’s gross domestic product. Thus, the effects of the expected recovery will significantly impact Montenegro due to our economy’s structure since the adverse impact was more pronounced in our country than in other more diversified economic systems.

From a local perspective, it would be unrealistic to expect the vaccination procedure to give the expected results by the beginning of the tourist season. Still, again, it will certainly not be as bad as when the pandemic began. We can count on tourism recovery of 35 to 50 percent, resulting in a GDP growth of four to seven percent. Considering this year’s GDP decline of 15 to 20 percent, it will take us two to three years to reach the 2019 domestic economy’s performance.