Interview of Vice Governor Nikola Fabris for daily “Vijesti”


31/12/2021


Transport Infrastructure Development To Be a Priority


Economic ratios currently indicate that the economy is stable, and GDP is also expected to record strong growth this year. No threat should be expected to the banking system’s stability, which is exceptionally highly liquid and solvent.


Measures that led to a satisfactory tourist season, the introduction of fiscalisation and child allowance were the Government’s good moves. Still, its unfavourable measure was maintaining high excise duties on fuel despite rising fuel prices, which negatively affected the living standard.


The transport infrastructure development should be a priority in the capital budget because it creates conditions for the economic industries’ development and growth, improves the business environment’s competitiveness, and the population’s life quality.


This was stated by Nikola Fabris, the Vice-Governor for Financial Stability and Payment System of the Central Bank (CBCG), in an interview with “Vijesti”.


“The priority in the medium-term capital budget should be continued public infrastructure improvement in all fields: roads, railways, wastewater treatment, electricity distribution networks, construction of new (artificial) beaches, etc. To improve the life quality, we support any investment in education and culture, Fabris stressed.


The Vice Governor pointed out that economic ratios point to a more stable economy at the moment, expecting that the gross domestic product (GDP) will record high growth this year as well.


However, the pandemic is quite unpredictable, as well as the external risks currently manifested in the form of rising global inflation and aggravated supply chains,” he said.


Fabris said that the new Government’s good moves were measures that led to a satisfactory tourist season, the introduction of fiscalisation and child allowance. Still, its bad measures were maintaining high fuel excise taxes despite high fuel prices, which adversely affected living standards. He believes that the omission is Montenegro’s absence from the “Mini Schengen” and the poor business results of many state-owned companies.


He also stressed that tourism’s one billion euros planned revenue might be achievable if the epidemiological situation and accompanying measures were similar to 2021.


“It is realistic to expect that the summer season starts earlier - if the preparations begin on time (last year, some tourist entrepreneurs were not even sure if they would work) and the health protocols will be adopted in time. In that way, the tourists accustomed to the new rules in such conditions can plan their vacation easier. Moreover, it is realistic to expect higher tourist services prices, partly due to global inflation and partly due to increased supply quality, said Fabris.


He said that the CBCG projections for 2022 have not been completed yet. They could not finish them before they see whether and how the “Europe Now” programme will be adopted as it can significantly affect the GDP. He believes that it is hard to project the effects of the “Europe Now” project on the SMEs operations because no projection of this programme’s impact has been made.


Fabris said not to expect any threat to the banking system’s stability as it is very highly liquid and solvent.


VIJESTI: What are the CBCG forecasts on the Montenegrin economy’s growth in 2022? What are they based on?


FABRIS: Our projections for 2022 are still incomplete. We could not finish them before we saw whether and how the “Europe Now” programme would be adopted as it could significantly affect the GDP.


Indeed, we are pleased that the reputable international institutions’ announcements about the Montenegrin economy’s growth are optimistic. They indicate that the growth will range from 5.6 percent, as projected by the International Monetary Fund and the World Bank, to 6.4 percent, as the European Commission forecasted.


VIJESTI: Will the economic crisis continuation and the uncertainty of the pandemic require some new measures by the CBCG and the Government to support citizens and the economy?


FABRIS: At the moment, economic parameters point to a more stable economy, and GDP is expected to grow strongly in 2022 as well. However, the pandemic is quite unpredictable, and the external risks currently manifest in rising global inflation and difficult supply chains. If the need arises, I am sure that the Government and the CBCG will prepare an adequate package of measures.


VIJESTI: Government projects one billion euros in tourism revenues in 2022. Is this assessment realistic, and how does the CBCG assess it? On what does the CBCG base its assessment?


FABRIS: If the epidemiological situation and accompanying measures are similar to 2021, this is achievable, but its realisation will undoubtedly be highly challenging. I believe that there is significant room for growth in 2022 compared to 2021, especially in the first half of the year. This is since the first half of 2021 started quite badly, and the revenues generated only in June 2019 were higher than in the first six months of 2021. I believe that the upcoming winter tourist season could be good, not only due to very favourable weather conditions. Many tourists who prefer this type of tourism showed a desire for skiing and “winter magic”, after two years in which a significant number of tourists remained at home.


On the other hand, it is realistic to expect that the summer season will start earlier if the preparations begin on time (even in June, some tourist entrepreneurs this year was not sure whether they would work), and health protocols are adopted in time. In that way, the tourists accustomed to the new rules in such conditions can plan their vacation easier. Moreover, it is realistic to expect higher tourist services prices, partly due to global inflation and partly due to increased supply quality. 


VIJESTI: In its opinion on the Government’s fiscal strategy, the CBCG stated that the 900 million euros capital budget planned for a four-year period should set priorities. What, in your opinion, should be the capital budget priorities?


FABRIS: The medium-term capital budget’s priority should be to continue improving public infrastructure in all fields: roads, railways, wastewater treatment, electricity distribution networks, construction of new (artificial) beaches and more. To enhance the citizens’ life quality, we support any investment in education and culture. We believe that the transport infrastructure should be a priority. It creates conditions for economic activities’ development and growth, has a multiplicative effect on further development, and improves the business environment’s competitiveness and life quality.


VIJESTI: CBCG pointed out that the planned effect of increasing revenues projected by the “Europe Now” plan may be missing. What are the consequences of this scenario, and how can these funds be compensated?


FABRIS: The CBCG pointed out potential risks, which does not mean that they will materialise. Still, they should definitely be taken into account. First of all, increasing excise duties in the short term to harmonise our regulations with the acquis communautaire can lead to rising prices and an adverse impact on tourism competitiveness. It can boost the non-observed economy, especially the tobacco market, with no effect on revenue growth and the loss of revenues. This happened in the recent past when excise taxes were increased and shortly afterwards reduced. Moreover, bearing in mind that legal solutions have not yet been adopted and the time needed for their implementation, the undeclared income’s taxation also carries the risk of not achieving the planned amount. The minimum wage increase may affect the growth of the labour market informal economy and the lack of planned revenues on that basis. If there is a lack of planned revenues, it would be necessary to correct expenditures during the year through a budget rebalance, identify new sources of revenue or go into borrowing.


VIJESTI: How will implementing the “Europe Now” plan affect the economy, especially the SMEs sector?


FABRIS: At the moment, it is difficult to give a precise answer, and unfortunately, no projection of its impact on micro, small and medium enterprises has been made. On the one hand, these companies will undoubtedly benefit from the average earnings growth. It will mean greater purchasing power and more accessible opportunities to market their services and products. It will also reduce their burden on salaries. On the other hand, they will not benefit from increasing taxes and employees’ wages if their wages are lower than the minimum.


VIJESTI: Will the state maintain its current credit rating this year, or may a new deterioration occur?


FABRIS: We should not expect a credit rating deterioration unless there were no unexpected external events, primarily the pandemic and significantly lower global growth than projected. All key ratios have improved. The budget deficit and public debt have been reduced. The banking system is sound and highly liquid, and the tourism revival has improved the balance of payments. Also, high GDP growth is projected for 2022.


VIJESTI: During 2021, banks increased fees and commissions to clients. Some of them announced this scenario in 2022 as well. Have you analysed how much the banks increased fees and commissions in 2021? What can the CBCG do to stop that growth?


FABRIS: The issue of the tariffs at which banks charge fees for payment services is within the competence of banks’ business policies and largely depends on the banking market competition. To protect the payment services users, the current Payment System Law prescribes the obligation of transparency of conditions and informing the payment services users when banks provide these services. Namely, banks have to publish the tariff under which they charge fees for providing payment services in business premises intended for work with payment service users and on their website. They also have to provide information on banking tariffs changes to payment service users at least two months before the new tariffs apply. Moreover, banks are obliged to submit those tariffs to the CBCG within three days of determining the changed fees for publishing on the CBCG website. Adopting the Law on Comparability of Fees Related to Consumer Accounts, Switching of Consumer Accounts and Payment Accounts with Basic Feature will further improve the transparency and comparability of fees for services related to consumer accounts and provide better information and better information and higher consumer protection. Banks will be obliged to publish fee tariffs individually, not as part of different service packages, as is currently the case, further facilitating their comparability. The consumers will have a clearer insight into different banks’ fees. Thus, they can quickly get a complete insight into the overview of offers on the market and choose the bank that provides the most favourable rates. It is realistic to expect that applying new legal solutions will increase competition among banks.


VIJESTI: How will interest rates on loans and savings move in 2022 compared to the previous year?


FABRIS: Assuming there will be no unexpected external events, I expect them to stabilise at a level similar to last year, with some minor fluctuations.


VIJESTI: What are the Government’s three good and bad moves in 2021?


FABRIS: As good moves, I would list adequate measures that have led to a satisfactory tourist season, the introduction of fiscalisation and child allowance. As bad measures, I would cite the maintenance of high levels of excise duties on fuel despite the high rise in fuel prices, which has negatively affected living standards. In my opinion, the omission is Montenegro’s absence from the mini Schengen and the poor business results of many state-owned companies.



Public debt will fall If the deficit does not increase due to lower revenues


VIJESTI: What will happen to public debt in 2022?


FABRIS: According to Ministry of Finance and Social Welfare estimates, public debt at the end of 2022 will amount to four billion euros (75.3% of GDP). Given that the estimated public debt for the end of this year is 4.17 billion euros or 85.5% of GDP, we can conclude that the public debt decline is expected primarily due to GDP growth, with planned repayments of liabilities due in the following years. The CBCG does not make official projections of public debt levels, as it is the responsibility of the Ministry of Finance and Social Welfare. It has all the information about the debt trend, future borrowing, i.e. realisation of signed credit arrangements with foreign and domestic creditors and repayment of due obligations to creditors. The Government has no plans for new borrowing in 2022. The public debt in 2022 is expected to decline in absolute terms unless there is a significant increase in the deficit due to a lack of planned revenues or unplanned higher budget expenditures.



Non-performing loans will slightly increase also in 2022 


VIJESTI: How much did the non-performing loans (NPLS) grow last year compared to the year before? How will they trend in 2022?


FABRIS: At the end of November, NPLs loans amounted to 5.98 per cent, slightly more than at the previous year-end when they amounted to 5.47 percent. Considering the current pandemic and the Montenegrin economy’s structure, this growth was lower than expected. Considering the current situation, it is realistic to expect a slight NPLs increase in 2022. Still, we should not expect any threat to the banking sector’s stability, as it is exceptionally highly liquid and solvent.