Moody’s lowers Montenegro, debt to B1

Moody's Investors Service said it downgraded Montenegro's long-term issuer and senior unsecured debt ratings by one notch to B1 from Ba3.

The short-term ratings were affirmed at Not Prime (NP).

The outlook remains negative.

Moody’s said the key drivers for the action are:

• Fiscal risks related to the highway project, which will increase the government's debt-to-GDP ratio. Cost overruns of the highway project could push the debt burden even higher, thereby reducing the country's shock absorption capacity further;

• Beyond the deterioration expected from the highway project, the government's pro-cyclical fiscal policy is set to weaken the government's balance sheet further; and

• The erosion in the country's external buffers due to elevated and persistent external imbalances, reflected in an expected current account deficit of close to 20% of GDP.

The negative outlook reflects the agency’s view of downside risks to the B1 rating. These relate to risks associated with the government's debt-funded growth strategy and the heightened policy uncertainty associated with the parliamentary elections to be held by October this year.

Moody’s also lowered the long-term foreign-currency bond and deposit ceilings to Ba1 from Baa1 and to B2 from B1, respectively. The short-term foreign-currency bond ceiling was downgraded to NP from Prime-2 (P-2), while the short-term foreign-currency deposit ceiling was assigned at Not Prime.

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