The shadow economy in Montenegro has seen a significant reduction, now estimated at 12.4% of GDP in 2026, down from 20.6% in 2022, according to findings from the Finance Ministry. This decline reflects a marked decrease in informal activities among registered private companies and entrepreneurs.
Informal employment also experienced a notable drop, decreasing from 15.7% to 9.8%. Additionally, the share of employees receiving partially declared wages fell from 10.8% to 5.3%. These changes indicate a shift towards greater compliance within the labor market.
Notably, sectors traditionally associated with high levels of informality have shown the most improvement. The construction sector’s informal economy decreased from 25.9% to 14.4%, while the hospitality sector saw a reduction from 18.7% to 9.4%.
The data suggests that enhanced tax enforcement and improved reporting practices have contributed to bringing a larger portion of economic activity into the formal system. This transition is expected to bolster revenues from VAT, income tax, and social contributions.
Despite these positive indicators, the Finance Ministry has stated it cannot accurately quantify the fiscal benefits derived from this formalization due to various influencing factors such as economic growth, inflation, and changes in tax policy.
This uncertainty is particularly relevant as Montenegro engages in discussions surrounding significant wage reforms, which may depend on sustained formalization and effective revenue collection strategies. If higher wages and reduced labor taxes prompt businesses to stay within the formal economy, it could help maintain or expand the tax base.
Conversely, if operational costs rise too quickly, there is a risk that some companies may revert to informal payroll practices. The Chamber of Economy has cautioned that substantial minimum wage increases could pose risks for financially vulnerable businesses.
This issue is critical for sectors such as construction, hospitality, retail, and small service enterprises where labor constitutes a significant portion of operating expenses. Montenegro has reported robust growth in tax and customs collections throughout 2026; however, without effective methods to distinguish revenue generated by formalization from that driven by inflation and consumption growth, policymakers face challenges in leveraging reductions in the shadow economy as a reliable funding source.
The decline from 20.6% to 12.4% of GDP holds economic significance if accurately reflecting ongoing trends. A lower level of informality enhances competition by ensuring compliant businesses are not disadvantaged by competitors evading taxes and labor obligations.
This shift can also improve bankability by channeling more corporate revenue and payroll activities into documented systems, which enhances financial statement quality and credit assessments for banks.
As Montenegro advances with reforms related to wages, pensions, and labor markets, understanding the potential revenue generated from reduced informality will be crucial for evaluating the sustainability of future spending commitments.
