Economist Ivo Županović warned that Montenegro’s proposed Euro model could add to prices and weaken the competitiveness of its tourism sector. Inflation in tourism was more than 50% from the start of 2022 to the end of this month, according to Županović, an economics and tourism professor at Adriatic University and Mediterranean University.
Prime Minister Milojko Spajić has announced the wage-increase model, but it had not been implemented when Županović assessed it. Based on the information available to him, it would raise pay grades in primary, secondary and higher education and increase wages. He said there was not enough information for a comprehensive analysis, and that the consequences could be assessed only after implementation.
Employers could cover higher labour costs through price increases, staff reductions or a combination of the two, he said. The added costs could also lead companies to change their internal staffing structures. The model’s sustainability would depend on individual employers’ decisions and how they respond to the proposed reform.
Županović assessed that Montenegro’s tourism sector had reached a price peak relative to the quality of its offer, leaving further increases as a risk to competitiveness. If the model is implemented as currently understood, prices would have to be adjusted upwards to some extent. He cautioned that increases already seen in retail and tourism could not be attributed in advance to a model that had not yet taken effect.
A set of proposed laws was already accompanied by some price growth, he warned. Measures to limit prices would have little effect if they were not implemented when the wage model was announced. Prices from New Year could be considerably higher than they were a month before the announcement.
Another unresolved issue is how pensions will be calculated if the current Law on Pension and Disability Insurance changes. Županović said there was not enough information on how the system would work in future or which law would govern it, including whether it would retain the existing principle. He noted that even a small change in legal wording could allow different interpretations, affecting current recipients of the Fund for Pension and Disability Insurance as well as future generations.
Before implementation, Županović proposed a public debate involving experts, businesses and the state to explain the model’s consequences and benefits clearly, transparently and in detail. Its effects remain uncertain until the proposal is implemented and employers’ responses become clear.
