Montenegro’s planned abolition of pension contributions could push its budget deficit to 8% of GDP, Nikola Altiparmakov, an assistant professor at the University of Belgrade’s Faculty of Economics, warned. He and Miloš Vuković of Fidelity Consulting said the changes could also undermine the intergenerational solidarity on which the pension system rests.
The government adopted six laws in mid-September for the Euro model, which is scheduled to take effect next year. The programme combines higher minimum wages, pension-system changes and a revised fiscal calculation. It envisages minimum wages of 1,000, 1,250 and 1,400 euros, depending on education level, alongside the abolition of pension and disability insurance and unemployment insurance contributions.
Altiparmakov said Montenegro’s budget deficit stood at 4% of GDP after the Europe Now 2 programme was implemented last year. Abolishing pension contributions would remove revenue worth more than 4% of GDP, potentially lifting the deficit to 8% of GDP, a level he described as unsustainable.
Pension funding and budget exposure
The Pension and Disability Insurance Fund’s budget for next year is planned at about 400 million to 430 million euros. Altiparmakov said the contribution changes would leave that funding source at zero. He warned of a dramatic rise in the budget deficit without a clear plan to replace the lost revenue.
Vuković estimated that pension increases would require another 100 million euros, while higher pay for public-sector employees would need a further 150 million euros. He put the total funding gap at 650 million euros. The prime minister had announced that the state would borrow at least 200 million euros next year to finance wages and pensions, Vuković said.
Altiparmakov argued that abolishing the contributions would dismantle the pension system’s basis of intergenerational solidarity overnight. He described the change to the “so-called Bismarck system of intergenerational solidarity” as unprecedented in a European country and said it was being carried out without transparency or legitimacy.
Each of the programme’s three elements — wage growth, pension changes and the fiscal calculation — carries serious risks, Altiparmakov said. He called them “practically atomic bombs” that could trigger an economic and social crisis, and said the measures could not be made to fit the fiscal rules governing the area.
Wages and price risks
Vuković described the Euro model as a gamble with the pension system and warned that it would fuel inflation. Prices had already begun to rise, he said, while construction firms were delaying apartment sales to raise prices per square metre by 100, 200 or 300 euros. He predicted inflation would “explode” in January.
Pensioners would receive only 50 euros each, according to Vuković. He said 130,000 pensioners would feel no benefit because of rising prices. Changes to public-sector pay could also leave newly hired workers earning as much as employees with decades of experience, he warned.
Vuković said higher wages were desirable but needed to reflect the economy’s capacity, alongside reduced corruption and unproductive spending. He rejected an increase to 1,400 euros, saying wages could reach 1,000 euros and then rise by 20, 30 or 50 euros a year, which he described as organic growth.
Altiparmakov urged the government to abandon the Euro model, saying citizens should know the cost of economic promises without real backing. Living standards rise through hard work rather than a “free lunch”, he said.
