Fabris: Direct payment operations of Serbia and Montenegro when they enter the EU

The Vice-Governor of the Central Bank of Montenegro (CBM) Nikola Fabris announced today that
Montenegro and Serbia will not have direct payment operations until they enter the European Union
(EU) and until they use the same currency. . Fabris said this at the forum of the Committee for European
Integration of the Parliament of Montenegro, where the free flow of capital and payment operations
were discussed, reports Television of Montenegro.

There are no payment operations between Montenegro and Serbia, but transactions are carried out
through intermediary banks, which is why this type of payment is more expensive. The economy and
citizens suffer multi-million damages as a result. The governments of the two countries stated during
numerous bilateral meetings that the lack of direct payment operation is an "open" issue and stated
that the current method is "to the detriment of the economy and the citizens".

During the September visit of Serbian Prime Minister Ivica Dačić to Podgorica, it was announced that the
governments will request from the central banks of the two countries to consider the possibility of
establishing payment operations.

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Relatives from abroad sent 2.7 billion euros to Serbia

Last year, 2.73 billion euros in remittances arrived in Serbia from the diaspora. When this sum, which is
10 percent of GDP in 2012, is divided among all residents, it turns out that each of us managed to "earn"
almost another average salary - 384.1 euros.

It is likely that the amount was even higher, because apart from legal channels, others are still popular,
with envelopes via bus drivers.

- It is certain that the amount of remittances that are not registered is even higher, because citizens do
not want to pay bank commissions, which can be high. On the other hand, it is not forbidden to bring
money into the country in cash. In any case, remittances are important not only for social peace, but
also because they are the guardian of the exchange rate - points out Nikola Fabris, professor at the
Faculty of Economics in Belgrade. Since the beginning of the crisis, five years ago, remittances from
abroad have been trending downward. Ours are also under the pressure of the recession. People lose
their jobs, their wages are cut. The logical outcome is that they spend more for their relatives in the
homeland. The structure of the diaspora is also changing. Entire families have emigrated, so they have
no one to send money to in Serbia.

- My daughter is in Canada. She started a family there, she has lived since 1999. If it weren't for her, I
don't know how we would do with this income, my salary is small, my husband's pension is even smaller,
so her 300 dollars, which is about 25,000 dinars, will come in handy - says Gordana T from Kuršumlija.

Research by the World Bank showed that from 2000 to 2010, as many as 43 billion dollars transferred to
Serbia from emigrants. At least twice as much as through direct foreign investment. Last year, they sent
2.735 billion euros to Serbia. In 2011 - 2.794 billion euros. Apart from the legal channels, however,
others are still popular, with envelopes via bus drivers.

- As emigration continues, it should be expected that this level of remittances and other transfers will be
maintained. In fact, it could be said that it is a permanent economic and social characteristic that a job is
sought abroad because there is none at home. It is not only important that there are no jobs found in
the industry, but that there are fewer and fewer in general, so the dependence on the foreign labor
market is great. That will not change any time soon – according to Vladimir Gligorov from the Vienna
Institute for International Economic Studies points out for "Blic".

Remittances and other private transfers are a more important item in the balance of payments than
direct foreign investments. Our interviewee says that they have a multiple role - they are a reason to
look for a job abroad, they are a significant source of household income and maintain consumption, and
thus the state's tax revenues. They are also a significant part of savings in banks from which the
domestic economy is lent.

- In order for it to be sustainable, it is necessary to renew the number of emigrants, as a result of which
the next generations will also look for work abroad - points out Gligorov.

Fabris part II

According to the scenarios of the Central Bank (CBCG), the Montenegrin economy should improve
between four and 7.5% this year, relative to the trend of the pandemic, announced the vice-governor of
the supreme monetary institution, Nikola Fabris.

Fabris said that the CBCG developed two scenarios for this year depending on the trend of the
pandemic, which should be accepted conditionally, because projections are usually made on the basis of
past experiences, and the pandemic is a unique event for which there are no similar experiences.

- At this moment, it is unknown how long the pandemic will last, whether there will be more mass
application of the vaccine this year, how effective it will be, as well as what measures will be taken by
the countries that are the most important partners of Montenegro. Therefore, these projections, in
accordance with further development of events, will be revised during the year - Fabris said in an
interview with the Mina-business agency.

As he explained, the CBCG's first optimistic scenario starts from the assumption that the coronavirus
pandemic will weaken significantly from June this year, as a result of vaccine development, acquired
immunity and improved knowledge about life and work in pandemic conditions.

- Under these assumptions, the projection indicates that the Montenegrin economy could achieve a
relatively high growth this year of around 7.5%, which is largely the result of the low base from last year.
We should bear in mind that this is a significantly lower level of gross domestic product (GDP) compared
to 2019 - said Fabris.
The second scenario assumes that the coronavirus pandemic will continue this year, i.e. that it will be of
a similar intensity as last year.

- The assumptions in this scenario are that there will be no locking of the economy, as was the case in
the second quarter of last year, and that there will be much more liberal entry conditions to
Montenegro compared to the previous tourist season. In this scenario, the GDP growth rate would be
around four percent, mostly as a result of the low base from last year - announced Fabris.

He said that the coronavirus pandemic was an event that marked last year and will be a key economic
topic this year as well.

- Under the influence of the pandemic, unfortunately, there was a big drop in GDP, an increase in
unemployment, a worsening of the social position of a large number of citizens, as well as a serious
worsening of the fiscal imbalance - said Fabris.

When it comes to last year, Fabris said that the CBCG projection indicates that the drop in GDP will most
likely be around 17%.

- It should be borne in mind that when making this projection, a large amount of data for the fourth
quarter was not available, so it should be accepted conditionally - said Fabris.

He added that the CBCG, through five packages of measures, made a significant contribution to
mitigating the consequences of the pandemic.

- The implementation of a binding moratorium on the repayment of obligations under approved loans,
only during March, April and May, had an impact on the increase in the liquidity of citizens and
companies by over EUR 150 million. In addition, the reduction of the mandatory reserve ratio by two
percentage points increased the liquidity of the banking sector by EUR 70 million, resulting in an
increase in their loaning potential - remarked Fabris.

According to him, during the nine months of last year, the banks provided adequate support to the
system and approved/granted 33.15 thousand new loans for 29.78 thousand clients, in the total amount
of EUR 620.2 million.

- Also, with the aim of mitigating the negative effects of the crisis, clients continued to use the
moratorium options and at the end of September there was another EUR 131 million in this category -
said Fabris and added that they also tested the measures with international financial institutions,
primarily the International Monetary Fund fund (IMF) and the European Central Bank (ECB) and received
confirmation that these are well-designed measures.

In the coming period, as he announced, the CBCG will closely monitor the situation and, if need be, will
not hesitate to adopt new measures.

Speaking about lending to citizens and businesses, Fabris said that loans to the non-financial sector, i.e.
the economy, amounted to EUR 1.12 billion at the end of November last year and recorded an increase
of EUR 46.8 million or 4.4% compared to the end of 2019. year, while at the annual level they recorded a
growth of EUR 63.9 million or six percent.

Loans to households at the end of November last year amounted to EUR 1.4 billion and recorded an
increase of EUR 44.4 million or 3.3% compared to the end of 2019, while at the annual level they
recorded an increase of EUR 60.1 million or also six percent.

- Bearing in mind the current pandemic and all the risks and challenges we are facing, I consider this a
result that exceeds all our expectations and a confirmation that the banks made a significant
contribution to mitigating the consequences of the pandemic. Personally, I would be very satisfied if this
tendency continued this year - said Fabris.

Commenting on the Government's two important economic decisions - the issuance of government
bonds on the international market and the failure to pass the budget for this year but the transition to
temporary financing until March, Fabris announced that, bearing in mind that in March of this year the
repayment of the Eurobond issue from 2016 is due, it was it is necessary to provide funds for its
repayment as soon as possible.

- If we had waited longer, the conditions would certainly have been less favorable and we would have
entered the high-risk zone. This was one of the key recommendations that we made as part of the
Recommendation to the Government for conducting economic policy this year and, as we have already
pointed out, the CBCG supported the decision on the issue of Eurobonds - said Fabris.

On the other hand, as he said, it is understandable that the Government, which is responsible for
economic policy, wants to pass the budget independently.

- Bearing in mind the date of formation of the Government, there was not enough time to prepare and
adopt the budget by the end of the year. I also believe that temporary financing should last as short as
possible and that it is necessary to adopt a new budget as soon as possible - Fabris added.

According to him, although it is not easy to plan public revenues and expenditures in conditions of a
pandemic and high uncertainty, it would be useful to adopt a new budget as soon as possible so that the
economic policy could be implemented normally, and then, if necessary, rebalance during the year.

He announced that Montenegro, under the influence of the pandemic, faced a significant increase in
public debt, primarily the share of public debt in GDP.

- It is a question of high participation and reducing the level of public debt will be one of the biggest
challenges for conducting economic policy in the coming period - believes Fabris.

He announced that the CBCG, traditionally, prepared recommendations for conducting economic policy
and forwarded them to the Government.
Among the key ones, Fabris mentioned the recommendation that they have been making for many
years, which is that it is necessary to diversify the economic structure and that support in the coming
period must be on several sectors.

- We recommended the preparation of a program for the functioning of the economy in conditions of
business uncertainty under the influence of the pandemic, with as few restrictions on business as
possible to the extent that public and individual health will not be endangered. The emphasis should not
be on the closure of activities, but on the promotion of safe business protocols, with verification and
sanctioning of non-compliance - Fabris explained.

As he added, the CBCG also recommended that the possibility of returning the working week be
considered, as this could increase employment and the tax base, while at the same time increasing
control over the observance of workers' legal rights.

- Bearing in mind that the pandemic will continue, we recommended the encouragement of economic
activity, especially for vulnerable sectors such as tourism, that is, the preparation of a new support
package, along with an accompanying social program for the most vulnerable citizens. For the field of
agriculture, we suggested providing an adequate level of subsidies, so that our farmers would be
competitive - said Fabris.

CBCG suggested increasing the level of digitization and wider application of IT technologies, which are,
on the one hand, an export opportunity for Montenegro, and on the other, gain additional importance
in the conditions of the pandemic.

The largest segment of recommendations refers to fiscal policy.

We suggested that a new Fiscal Strategy be drawn up as soon as possible, which will be the umbrella
document for the creation of fiscal policy guidelines for the next period. We also suggested the creation
and implementation of a medium-term budget framework, with more binding medium-term
expenditure limits, including a general expenditure limit, as well as the obligation to harmonize and
justify any eventual changes in expenditure - Fabris said.

As he recalled, the CBCG also suggested the establishment of the Fiscal Council, as well as the revision of
fiscal rules.

- We also recommended that an initiative be launched with the creditors for the restructuring of parts of
the public debt, especially the segment related to the construction of the highway. An important
recommendation is that due to the increased level of uncertainty, a significant amount of fiscal reserve
should be formed - concluded Fabris.

The supreme monetary institution also suggested a restrictive policy of issuing new guarantees, and in
case of approval, it is necessary to provide adequate collateral.

- In order to preserve fiscal sustainability, it is necessary to avoid new large capital expenditures, until
the risk to the sustainability of the public debt is reduced, and the state of public finances is significantly
improved. We also consider the reform of public administration necessary, in order to optimize it -
Fabris concluded.