Page 69 - Central & Southeast Outlook 2020

3.7 ​Budget - Moldova
The new executive, which took over in mid-November, drafted the 2020 budget on the safe assumption of 3.8% growth projected by the previous government.​A 3.3% of GDP budget deficit is planned for 2020.
In the short term, the Moldovan government can count on pursuing President Igor Dodon’s plans using local banks’ resources after the central bank cut the monetary policy rate by 2pp towards the end of 2019. The structure of the budget will determine whether this spurs inflation.
With the change of government in November, the outlook changed from moderate fiscal consolidation to more fiscal stimulus. In fact, the new government informally headed by Dodon planned for 2020 a wider budget deficit than in 2019, although the financing sources remain to be clarified.
While the long-term impact of the deep 2pp interest rate cut to 5.5% remains debatable, the move will provide safe and cheap financing from local resources for the government in case Moldova’s Western development partners freeze their financing on political concerns, or if the government’s ambitious plans to secure $500mn worth of loans from Russia are not realised. Separately, it will encourage retail lending with a positive impact on GDP.
3.8 ​Budget - Montenegro
Montenegro is targeting a budget deficit of 0.99% of GDP in 2020,​ while spending is planned to total €2.58bn, up by €200mn from 2018, and the deficit should total €50mn. Revenue is seen rising 8.4% y/y.
The government in Podgorica has decided to increase its spending after years of cost optimisation aimed at reduction of the high public debt.
This policy has been praised by international institutions and is expected to yield results. The International Monetary Fund (IMF) has urged Podgorica to take a set of measures, including to manage infrastructure investment carefully, rationalise government employment and tax expenditures and move forward pension reforms.
The government also plans to spend in 2020 reserves it has accumulated issuing Eurobonds in 2019. These funds will be used only for debt repayment.
The main generators of revenue growth are expected to be increased economic activity, further improvement of tax discipline, further fiscal consolidation, restructuring of the tax administration, as well as
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