Standard & Poor's Revises Montenegro's Economic Outlook from Stable to Negative

Standard & Poor's (S&P) affirmed Montenegro's B+/B rating, but revised its outlook to negative from stable, as the pandemic of the novel coronavirus (COVID-19) may send the tourism-dependent economy of the country into a deep recession in 2020, it said.

– Although we assume growth will rebound in 2021, a protracted standstill in economic activity could inflict permanent damage to Montenegro's productive capacity, materially weaken its fiscal position, and negatively affect its domestic banking sector – S&P said in a statement late on Friday, the SeeNews portal reports.

Fidelity Consulting commented that Montenegro was now only a step away from falling into the sixth, worst credit rating category.

S&P published the rating on May 1, whereas the next scheduled rating publication on Montenegro will be on September 4, 2020.

– In this case, the reason for the deviation is the rising risk of a protracted standstill in the domestic economy due to the direct and indirect effects from the SARS-CoV-2/COVID-19 pandemic and the adverse impact it could have on productive capacity, fiscal revenue intake, and banking sector stability – the agency says.

According to them, Montenegro remains particularly exposed to a protracted lockdown and travel restrictions, given that its tourism sector plays a key role in domestic economic activity. They also consider that the COVID-19 pandemic could pose risks for the country's banks, for instance, if asset quality were to deteriorate notably.

– We could lower our ratings on Montenegro within the next 12 months if the economic fallout of the COVID-19 pandemic becomes more severe than we currently expect, leading to an erosion of fiscal performance, or resulting in a material deterioration in asset quality or heightened liquidity constraints in Montenegro's banking sector – the agency says

They say that they could revise the outlook to stable if Montenegro's economic and fiscal prospects stabilize, putting its fiscal debt trajectory back on a downward path. S&P adds that a protracted recovery from COVID-19 risks eroding Montenegro's already weak fiscal position.

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