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Kosovo and Montenegro Country Risk Report Q4 2015

  • August 2015
  • -
  • Business Monitor International
  • -
  • 53 pages

Core Views

The risk of social instability is rising in Kosovo as the government is on course to implement fiscal austerity measures as part of its forthcoming Stand-By Arrangement with the IMF On the foreign policy arena, we highlight three main scenarios for Kosovo’s relations with Serbia, all of which are likely to compound the deteriorating
social stability scene to a different degree

T he Stand-By Arrangement (SBA) agreed between the International Monetary Fund (IMF) and Kosovo in early June (which needs to be formally approved by the IMF Executive Board in July) is likely to have a destabilising effect on Kosovo’s consumption-driven economic model While the package, which is predicated on the implementation of structural reforms, aims to facilitate a shift in the economy towards an investment/export oriented model and away from its consumption dependence, the fragility of the social environment constitutes a major impediment to the programme’s goals, which is likely to render them elusive

Core Views

Montenegro will continue to make slow but steady progress towards EU membership, despite significant challenges relating to fighting organised crime and corruption There is a strong political will in the establishment and growing public consensus towards integration with the West
T he Montenegrin economy was hit hard by regional geopolitical tensions in 2014, stemming from the Ukraine crisis, and Russia’s currency and economic collapse which led to a dramatic drop in Russian tourists to the country The country will see a modest rebound in 2015 and into 2016, in line with a similar upturn in the tourist sector

Table Of Contents

Kosovo and Montenegro Country Risk Report Q4 2015
Executive Summary - Kosovo 7
Core Views 7
Key Risks To Outlook 7
Chapter 11: Political Outlook - Kosovo 9
SWOT Analysis 9
BMI Political Risk Index 9
Domestic Politics 10
All Scenarios For Northern Mitrovica Lead To Rising Social Instability10
The risk of social instability is rising in Kosovo as the government is on course to implement fiscal austerity measures as part of its
forthcoming Stand-By Arrangement with the IMF
table: Political Overview10
Long-Term Political Outlook 11
Political Future Far From Certain Despite Serb Agreement11
Kosovo's long-term political future is far from assured, with a host of structural economic inefficiencies, weak institutions and societal
schisms weighing on the country's outlook through to 2024 Our core scenario envisages an international stalemate developing over the
2008 unilateral declaration of independence which, in turn, leads to a broad consensus for the current peaceful status quo, although the
April 2013 agreement signed with Serbia does pave the way for eventual EU membership
Chapter 12: Economic Outlook - Kosovo 15
SWOT Analysis15
BMI Economic Risk Index15
Economic Activity 16
IMF Deal Posing Risks To Social Stability16
Kosovo's IMF deal reached in June is likely to further exacerbate its fragile social stability outlook The IMF deal is likely to reduce living
standards, and increase public discontent, which could take the form of rising ethnic tensions and/or growing support for radical Islam
Table:Economic Activity16
Chapter 13: 10-Year Forecast - Kosovo 19
The Kosovan Economy To 2024 19
Economy To Remain Least Developed In Region19
Kosovo's economy will remain the least developed in the Western Balkan region through to 2024, as underdeveloped road and energy
infrastructure act as a clear check on growth potential over the long term Foreign assistance and remittance inflows will remain key
sources of external capital, particularly as elevated political risk continues to deter large-scale foreign investment
Table: Long-Term Macroeconomic Forecasts19
Executive Summary - Montenegro 21
Core Views21
Key Risks To Outlook21
Chapter 21: Political Outlook - Montenegro 23
SWOT Analysis 23
BMI Political Risk Index23
Domestic Politics 24
Path To EU Membership Firmly In Place24
Montenegro will continue to make slow but steady progress towards EU membership, despite significant challenges relating to fighting
organised crime and corruption There is a strong political will in the establishment and growing public consensus towards integration
with the West
Table: Political Overview24
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kosovo And Montenegro Q4 2015
Long-Term Political Outlook 25
Converging Towards The EU25
Over our forecast period to 2024, we expect Montenegro to experience a sanguine domestic policy environment while gradually
converging with Western European norms and gaining eventual entry into the EU Nevertheless, the country faces significant challenges
over this span, not least of which is a lingering legacy of regional conflict, fostering economic growth, and tackling difficult reforms
Chapter 22: Economic Outlook - Montenegro 29
SWOT Analysis29
BMI Economic Risk Index 29
Economic Activity 30
Return Of Russian Tourists Helping A Modest Rebound In Economy30
The Montenegrin economy will see a modest rebound in 2015 and 2016, in line with a recovery in the tourist sector, which was hit hard
by the withdrawal of Russian tourists in 2014
Table: Economic Activity30
Chapter 23: 10-Year Forecast - Montenegro 33
The Montenegrin Economy To 2024 33
BE Reforms Crucial For Convergence33
We hold a relatively bullish outlook on Montenegro's long-term convergence prospects, and forecast real GDP to expand by an average
of 30% between 2014 and 2023 That said, we stress that, in order to realise its full growth potential, Podgorica will need to address
ongoing shortcomings to the country's underlying business environment While we see significant scope for further foreign investment
over the long term, we believe growth will remain dependent on the production of aluminium, in addition to the tourism and infrastructure
sectors
Table: Long-Term Macroeconomic Forecasts33
Chapter 24: Operational Risk - Montenegro 35
Operational Risk 36
TABLE: South East Europe - Labour Market Risk36
TABLE: South East Europe - Logistics Risk39
TABLE: South East Europe - Crime And Security Risk40
TABLE: South East Europe - Trade And Investment Risk41
tABLE: Main Import Products, 201242
Chapter 3: BMI Global Macro Outlook 51
Global Outlook 51
Assessing The Aftermath Of Three Key Events51
Table: Global Assumptions51
Table: Developed States, Real GDP GrowtH, %52
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 52
Table: Emerging Markets, Real GDP Growth, %53

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