Moody’s Investors Service said Sept. 9 that it had affirmed Montenegro’s B1 long-term issuer and senior unsecured debt rating, as well as the country’s Not Prime (NP) short-term issuer rating and the steady outlook.
The ratings were affirmed due to Montenegro’s high income level relative to its peers, balanced by its narrow economic base exposed to external risks.
“Montenegro’s B1 rating affirmation balances its stronger position against its regional and rating peers in terms of wealth levels against its small size and economic base which expose it to external shocks, leading to a more volatile growth performance than its peers,” Moody’s said in a statement.
On the other hand, the diversification of Montenegro’s economy remains limited, with tourism accounting for around 25% of GDP and employment. The country is vulnerable to fluctuations in external demand due to its narrow export base, both in terms of sectors and destinations.
The country’s public debt remains high, limiting fiscal space. Montenegro was assessed as being threatened by insufficient liquidity and external events, as well as growing political instability.
The stable outlook reflects Moody’s expectations that Montenegro’s debt will decline in 2022, while fiscal risks related to the construction of the key Bar-Boljare highway will remain contained.
“As the fallout from the Russian-Ukrainian military conflict weighs on the economic and fiscal outlook, Moody’s expects limited credit implications given the moderate trade and financial ties with both countries, and in particular limited energy ties with Russia,” the rating agency said in the statement.
Yet Russia and Ukraine together accounted for almost 16% of tourist arrivals in 2021 and the country is struggling to make up for their absence this year.
“While early indications suggest that the performance of the tourism sector during the summer season has been strong, Moody’s expects a significant deceleration in growth this year, with real GDP growth forecast at around 3.5% in 2022 and 2023,” the rating agency noted. .