Montenegro Country Report - February, 2014

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Montenegro Country Report - February, 2014

This report covers the main macroeconomic releases from February 5 until March 5, 2014, as well as the financial and political events that took place in Montenegro during this period. The report also includes corporate news for companies including KAP and Uniprom, mining firm Rudnici Boksita, and Czech firm Skoda Praha.

The EC revised its forecast for Montenegro's 2014 economic growth upward to 2.7% in the winter edition of its European Economic Forecast from the 2.3% projected in the autumn. This year's growth will be mainly underpinned by rising net exports and a new wave of tourism, energy and infrastructure investments.

Montenegro’s budget deficit shrank 9.6% y/y to EUR 23.5mn in January 2014 as revenue increased markedly over the period, whereas expenditures were lower than expected. The Montenegrin government managed to sell 43% of the EUR 100mn four-year bond issue it offered for sale on the local stock exchange. Montenegro's public debt grew 10.2% year on year to EUR 1.87bn at end-December 2013, underpinned by both rising internal and external liabilities. The country plans to borrow up to EUR 358mn in 2014 to service its debt and finance its budget gap and capital investments in various sectors.

Key Points:

• In corporate news, the bankruptcy receiver of Montenegrin aluminum firm KAP, Veselin Perisic, decided to sell the company's assets to privately held Uniprom for EUR 28mn.

• The commercial court in charge of the insolvency proceedings of Montenegrin bauxite mining firm Rudnici Boksita declared the company bankrupt on Wednesday, February 26, since no party has submitted a restructuring plan for the troubled firm.

• Montenegrin state-controlled energy producer EPCG announced that after direct negotiations and evaluation of all bids by a working group, its board of directors has decided to proceed talks on the TE Pljevlja 2 project with Czech firm Skoda Praha, Powerchina’s Hubei Electric Power Survey & Design Institute and China Machinery Engineering Corporation (CMEC).

• The CPI edged down 0.4% year on year in January, after inching up 0.3% year on year in December mainly due to falling food, transport, housing and utilities and clothing and footwear costs.

• January’s industrial production growth slowed to 7.4% year on year from 14.5% year on year in December as rising manufacturing and mining and quarrying output was partly offset by falling utilities production.

• Net FDI inflow to Montenegro shrank 29.6% year on year to EUR 323.9mn in 2013 following a 16.6% rise the year before, due to falling equity investments which offset higher inter-company lending.

Table of Contents

Executive Summary
1. Real Sector
1.1 GDP
1.1.1 EC lifts Montenegro’s 2014 GDP growth forecast to 2.7%

1.2 Inflation
1.2.1 Montenegro's consumer prices declines 0.4% y/y in Jan 2014
1.2.2 Montenegro's EU-harmonised inflation inches up 0.1% y/y in Jan 2014
1.2.3 Montenegro's PPI drops 1.3% y/y in Jan 2014

1.3 Industry and Trade
1.3.1 Montenegro's industrial output growth slows to 7.4% y/y in Jan 2014
1.3.2 Montenegro’s industrial sales decline 5% y/y in Jan 2014

1.4 Labour market
1.4.1 Montenegro's average net wage declines 2.4% to EUR 478 in Jan 2014

1.5 Construction
1.5.1 Number of building permits in Montenegro rises 7% in 2013

1.6 Tourism
1.6.1 Foreign tourist arrivals to Montenegro rise 4.8% in 2013

2. Fiscal Sector
2.1 Montenegro's public debt rises 10.2% y/y to EUR 1.9bn at end-Dec 2013
2.2 Montenegro’s budget gap narrows 9.6% y/y to EUR 24mn in Jan 2014 on higher tax proceeds
2.3 Montenegro to borrow up to EUR 358mn in 2014, equalling to 10.2% of GDP
2.4 Montenegro sells 43% of EUR 100mn four-year debt issue on local bourse
2.5 Montenegro sells EUR 8.5mn of 182-day T-bills on March 4, yields drop

3. Financial Intermediation
3.1 Montenegro’s bank assets growth slows to 2.9% at end-Jan 2014 on falling lending activity
3.2 Montenegro’s bank deposits rise 6.4% y/y at end-Jan 2014
3.3 Lending interest rate in Montenegro declines by 1.5pps y/y to 9.9% in Jan 2014
3.4 Montenegro's avg interest rate on deposits declines 0.8% y/y to 2.4% in Jan 2014

4. External Sector
4.1 Montenegro’s net FDI decline 30% y/y to EUR 324mn in 2013
4.2 Montenegro’s trade gap narrows 27% y/y to EUR 60mn in Jan 2014

5. Structural Reforms and Corporate News
5.1 Bankruptcy receiver decides to sell Montenegro's KAP assets to sole bidder Uniprom
5.2 Montenegrin court declares bankruptcy at mining company Rudnici Boksita
5.3 Montenegro shortlists Czech Skoda Praha, two Chinese firms in major thermal power tender
5.4 Montenegro, China’s CRCB sign EUR 809mn deal for key motorway section construction

Number of pages: 21
Release Date: Wed, 05 Mar 2014