International Agency for Credit Rating Moody's, confirmed Ba3 credit rating to Montenegro from April 2009

Published date: 18.08.2009 17:54 | Author: KREDITNI REJTING CRNE GORE

Print

Moodys International agency for credit rating affirmed its Ba3 credit rating to Montenegro from April. Montenegros Ba3 government bond rating and country ceilings are primarily based on an assessment of its low level of economic and institutional strength, limited by the countrys small size and the concentrated nature of its economy, says Moodys Investors Service in its new annual sovereign credit report on Montenegro. as stated in the Report, Montenegro is a relatively newly established country. Its economy is very small compared with the economies of other countries both in the region and globally: with a population of fewer than 600,000, and a moderate level of average income, nominal GDP is forecast at only $4.2 billion in 2009, making the country one of the smallest rated by Moodys. The small size of its economy means that Montenegros output is concentrated in a few sectors and, as such, is likely to suffer greater volatility over time, as stated in the Report of Moodys analyst. It also makes the economy much more vulnerable than larger economies to sector-specific and company-specific shocks. As being assessed in Moodys Report, institutional development of the country is still in its early stages and needs significant improvement to bring it up to EU standards. The EU accession process should propel this convergence in a number of ways, since adoption of the EU acquis requires a significant overhaul of a countrys laws, regulations, public sector and associated bodies. It was assessed that financial strength and susceptibility to event risk are assessed to be moderate. The countrys fiscal policy has been fairly prudent and the governments debt affordability is high. The ratio of interest payments to government revenue is forecast at only 2% in 2009, compared with the Ba rating category median of 12%. Moreover, it was reported that the access to finance is partly constrained in the current environment, and the government was forced to inject most of the budgetary surpluses it accumulated in 2006-2008 into the banking system in late 2008 to support liquidity. Although event risk is mitigated by the countrys euroisation, there are several other risks remaining, including the risk that the economic slowdown could be exacerbated by deflating asset prices and the existence of large external imbalances. The government could be forced to enter into a stand-by arrangement with the IMF if the economic situation continues to deteriorate. In April 2009, Moodys downgraded Montenegros government bond rating by one notch and retained the negative outlook. The rating action was in response to the deteriorating economic environment, which was expected to put significant pressure on the governments budget and to generate contingent liabilities on its balance sheet. Since then, the situation has generally evolved in line with Moodys expectations. The issuance of this credit report by Moodys Investors Service is an annual update to the markets and is not a formal action to alter the credit rating of the issuer.