Montenegro Country Report - March, 2015

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Montenegro Country Report - March, 2015

This report covers the key macroeconomic and financial releases as well as the political events from Montenegro for the period of March 6 – April 5, 2015.

The European Union (EU) opened on Monday, March 30, two new chapters in Montenegro’s negotiations – on taxation (chapter 16) and on external relations (chapter 30).

The European Investment Bank (EIB) will provide a €70mn in credit lines to Montenegro's Investment and Development Fund (IRF) to support its operations.
The international environmental organisation CEE Bankwatch Network said that the electricity generated by the planned second unit at Montenegro’s sole thermal power plant TE Pljevlja will not be profitable. Meanwhile, Montenegro’s government has signed an interim agreement with A2A for the Italian company to continue managing the power utility EPCG for three more months. A2A’s contract expired on March 31, but the two sides are still negotiating their future cooperation, with the government saying the goal of the interim deal is to create the framework for further negotiations on a future longer-term contract.
Montenegro plans to invest €780.6mn in regional development projects in 2015. Most of the funds will be invested in the Smokovac-Matesevo section of the key Bar-Boljare motorway (€206mn).

Key points:

• The budget deficit expanded 12.93% y/y to €40.1mn in the first two months of 2015 due to higher spending and lower revenue growth
• The consumer prices accelerated their annual growth to 0.6% in February from 0.2% y/y in January
• Industrial production increased by 5.9% y/y in February, reversing a 3.4% y/y contraction in January
• Unemployment rate decreased to 18.1% in Q4 2014 from 19.5% a year earlier - labour force survey
• Bank assets rose 4.9% y/y to €3.12bn at end-February, slowing from a 6% annual growth the month before

Table of Contents

EXECUTIVE SUMMARY 3
REAL SECTOR 4
1. GDP 4
Government revises down 2015 GDP growth target to 2% 4
2. Inflation 4
CPI inflation speeds up to 0.6% y/y in February 4
EU harmonised deflation eases to 0.1% y/y in February 5
PPI inflation slows to 0.6% y/y in February 5
3. Industry and Trade 6
Industrial output up 5.9% y/y in February 6
Industrial sales growth accelerates to 6.7% y/y in February 7
Retail sales grow 1.4% y/y in November 7
4. Labour Market 8
Monthly average net wage rises 0.6% y/y in February 8
Unemployment rate falls to 18.1% in Q4 - labour force survey 8
5. Tourism 8
Foreign tourist arrivals to Montenegro rise 21.8% y/y in February 8
FISCAL SECTOR 9
Montenegro sells €500mn five-year Eurobond with 3.875% coupon 10
FINANCIAL INTERMEDIATION 10
Bank assets growth slows to 4.9% y/y at end-February 10
Bank deposits growth slows to 9.2% y/y in February 11
Average lending interest rate in Montenegro falls to 9.74% in February 11
NPL ratio down to 16.4% in February – c-bank 12
Mandatory reserves of Montenegrin banks fall 0.5% m/m to €213.7mn at end-February 12
EXTERNAL SECTOR 12
Net FDI inflow jumps nearly 50% y/y to €25.6mn in January 12
Net public debt reaches €2.02bn at end-December 13
STRUCTURAL REFORMS AND CORPORATE NEWS 13
UAE’s Royal Group confirms withdrawal from Montenegro’s Kraljicina Plaza resort sale 13
Montenegro, Italy's A2A sign temporary agreement on EPCG management 13
European NGO says Montenegro’s 250 MW thermal power unit will not be profitable 14
Submarine power link between Italy and Montenegro to be operational in 2018 15
Montenegro's EPCG opens final bids for 250 MW thermal power unit 15
Russia’s central bank appeals restored licence of Montenegro’s Atlas Banka 16
Montenegro to invest €780.6mn in regional development in 2015 17
Montenegro, ECB complete €300,000 needs-assessment project 17
Montenegro to invest €250.2mn in roads in 2015 17
Opposition Pozitivna Crna Gora party proposes higher VAT on luxury goods 18
EIB, Montenegro’s IRF sign €40mn loan deal 18
Italy's Terna to pay €2.75mn to rent sea area for major submarine power cable in Montenegro 18
EIB to provide €70mn to Montenegro’s IRF to support SMEs 19
Government to refinance up to 70% of SMEs costs for modernisation 19
Montenegro mulls drawing €689mn loan for Bar-Boljare motorway stretch from China’s Exim Bank 19
POLITICS 20
EU, Montenegro open chapters on taxation and external relations in accession talks 20
Montenegro’s parliament approves government changes 20

Number of pages: 20
Release Date: Sat, 11 Apr 2015