High public spending, limited revenues, and forthcoming substantial debt repayment obligations pose the greatest challenges to Montenegro’s economy, which is expected to experience slowed growth through 2026.
This assessment comes from the Economic Reform Program for Montenegro analyzed by the European Commission.
The report highlights that Montenegro sustained robust economic growth in 2023, projected to taper off between 2024 and 2026.
Key drivers of the 5.8% economic growth in 2023 included a successful tourist season, strong personal consumption, and a significant influx of foreign nationals.
“The primary hindrance stemmed from high yet manageable inflation, alongside stricter financing conditions that burdened investments,” according to the EC document.
The baseline scenario outlined in Montenegro’s Economic Reform Program (ERP) anticipates a slowdown in real GDP growth to an annual average of 3.2% from 2024 to 2026, driven by domestic demand, consumption growth, and a rebound in investments.
“Net exports are projected to contribute minimally to GDP growth, as the tourism sector, surpassing 2019 levels by 2023, is expected to decelerate from double-digit expansion,” the EC document forecasts.
Further predictions suggest that imports may exceed expectations if investment plans materialize, notably with the construction of the Bar – Bojare highway, while Montenegro could achieve modest debt reduction.
The EC also points out that the 2024 deficit primarily reflects substantial increases in social transfers and capital expenditure.
They indicate that public debt is set to decrease to 61% of GDP by 2026.
“The need for debt refinancing remains significant, peaking at 11% of GDP in 2025,” states the EC.
Among the main challenges facing Montenegro’s economy are high public spending, limited revenue sources, and substantial impending debt repayment obligations.
The EC emphasizes that addressing these issues will require stronger fiscal consolidation measures than those outlined in the Economic Reform Program. They also caution that debt repayment needs will escalate sharply, starting in 2025, and further in 2027 and 2029, heightening vulnerability amid stringent financing conditions.
“With Montenegro’s monetary framework in mind, fiscal policy stands as the primary tool for managing aggregate demand and supporting continued inflation reduction. This necessitates a comprehensive medium-term fiscal plan with specific consolidation measures and a commitment to lowering debt levels below 60% of GDP as stipulated by fiscal rules,” the document underscores.
The EC underscores the importance of improved management and prioritization of major infrastructure projects given the constrained fiscal space.
“Establishing an independent fiscal institution would enhance cost assessments for new initiatives and bolster fiscal discipline. Enhanced oversight and risk management of state-owned enterprises (SOEs) would gradually alleviate their burden on the budget,” concludes the EC document.
