Standard & Poors Downgrades Montenegro’s Sovereign Debt to a BB- Rating

The credit rating agency Standard & Poors downgraded it’s rating on Montenegro’s sovereign debt this week.  The rating of both Foreign and Local Long Term Montenegrin government debt was downgraded to a BB- rating, but with a stable outlook.

S&P defines a BB- rating as “Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions.” A stable outlook means that a rating is not likely to change in the short term.

S&P left the ratings on Montenegro’s Foreign and Local Short Term government debt at a B — the same rating it has held since 2004. A B rating from S&P means that the government is “More vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments.”

Reasons for the Downgrade

S&P predicts that GDP growth in Montenegro will slow to 0.5% in 2012. Further, S&P also believes that the Montenegrin government may not be able to meet its deficit target of 2.5% of GDP in 2012.

In addition, loan guarantees from the Montenegrin government for nominally private firms such as Kombinat Aluminijuma Podgorica (KAP) and Željezara Nikšić and have created significant additional debt on the governments balance sheet.

How We Can Improve

S&P advised that “further structural and microeconomic reforms would improve Montenegro’s long-term growth prospects.” The company specifically pointed out that “restrictive collective bargaining covers a large part of the labor force.”

 

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