The European Commission warned that Montenegro’s Euro model could threaten public-finance sustainability and the country’s external balance as public spending reached 45.4% of GDP, above the 44% planned. The report called for spending restraint and further assessment of the model, including consultation with businesses, as the policy raises wages and removes pension contributions.
The Commission’s report also urged measures to increase revenue and medium-term limits on public-sector wage costs. Economist Davor Dokić said the model runs against the need to curb spending and would increase consumption, the budget and trade deficits, and public debt.
He argued that higher pay would lift purchasing power and could raise budget revenue, but also bring a strong inflationary impact. Citizens were already preparing for new loans, Dokić said, while people discussing the policy from an economic perspective were accused of opposing higher wages.
Spending and revenue pressures
Total public spending was 7.8% higher than a year earlier, according to the report. Higher social transfers, healthcare costs and subsidies contributed to the increase. Public-sector wages, social security transfers and healthcare costs together accounted for 68% of total public expenditure last year.
The Commission identified inefficient fiscal rules, high mandatory spending and substantial debt-refinancing needs as factors increasing Montenegro’s fiscal vulnerability. It called for a comprehensive reform of public-sector pay to establish a merit-based reward system. Employee performance assessments are in use, the report noted, but should better connect work results with training and career progression.
The budget deficit reached 4.3% of GDP in 2025, above the 3.5% planned in the September revision. Budget revenue was 41.1% of GDP against a planned 40.6%, while tax revenue was 4.8% above plan. Other revenue fell short, including pension contributions, which were 11.1% below the target.
After the contribution rate was reduced, pension contributions fell by 2.8 percentage points as a share of GDP, to 4.3%. High mandatory costs and debt, alongside reliance on value-added tax (VAT), leave public finances exposed to changes in economic activity, the report said. VAT and excise duties made up 54% of total budget revenue.
Tax collection from wages and company profits was good in 2025, the Commission reported, but the effects of widening the tax base were fairly limited. Private consumption and investment remained the main drivers of economic expansion. Wage increases and strong credit growth supported household spending, while economic growth slowed compared with previous years.
High public capital expenditure supported investment, according to the report. Montenegro’s total foreign trade rose 7.2% year on year, driven by increased imports. Dokić argued that the country would import more because it produces very little, while exporting tourism services and electricity when rainfall allows.
Debt, inflation and the Euro model
Public debt rose to 63.5% of GDP at the end of 2025, from 61.3% in 2024, as new borrowing was used to build fiscal reserves for debts due the following year. Debt fell below 60% of GDP in the second quarter of 2026, but the government projected it would rise to 68% by year-end.
Debt refinancing needs, including eurobonds, amounted to 383.6 million euros in 2026. The report put the expected peak in 2027, when refinancing needs would reach 750 million euros, or 8.4% of GDP. Dokić said Montenegro faced repayment of 1.35 billion euros next year and did not have the money to repay it. He estimated that the Euro model would create an additional budget gap of around 700–750 million euros.
The economist also estimated that the policy would transfer a cost of 350 million euros to the private sector, which had not been consulted, and said it would destroy a substantial part of that sector. These were his assessments of the model’s effects; the Commission separately warned that high mandatory spending and large refinancing needs contributed to fiscal vulnerability.
Average inflation rose to 3.9% in 2025, from 3.3% in 2024, with external and domestic factors contributing to the increase, the report said. Dokić’s view was that wage growth could boost purchasing power and revenue but also cause a high inflationary shock.
Dokić said wages could not be increased by decree without creating new value, and that the market economy prescribed by Montenegro’s Constitution did not allow such an approach. He criticised Prime Minister Milojko Spajić for proposing wage increases without consulting social partners, saying the proposal ridiculed economic science. Dokić called the move a “political trick” and described people with secondary education and public-sector employees as its target group.
He questioned whether public employees would handle and process more applications after a wage increase, and what had caused the rise. Dokić said public-sector workers were not productive and that their work should be measured by efficiency; he wanted to see how efficiency could increase by 108%, the wage rise he attributed to the proposal. He called such an increase “a kind of public corruption”.
The analyst compared Spajić’s promise that everyone would receive a salary of 1,500 euros with claims that former Democratic Party of Socialists (DPS) leader Milo Đukanović had used public-sector jobs to secure votes. He also speculated that after Montenegro joined the European Union it could receive a letter seeking a 45,000 reduction in public-sector employment from 85,000 because of excessive spending.
The Commission said Montenegro had made progress in developing a functioning market economy. Its report nevertheless called for spending restraint and further risk assessment of the Euro model, including consultation with stakeholders such as businesses.
