The recent report from the European Commission on Montenegro’s public finances raises concerns about the country’s economic growth prospects. For economic analyst Mirza Mulešković, this is not unexpected.
The report highlights a significant issue: high public spending and the urgent need to increase government revenues. Many economists, including Mulešković, have pointed this out repeatedly.
“In the Commission’s report, the focus is on what we’ve all been warning about — excessive spending. Recently, wages have risen sharply, which has inflated costs beyond sustainable levels. Although there were promises to cut unproductive expenses, these costs continue to grow. For instance, while proposals emerged to increase funding for political parties, there was a lack of resources allocated for tourism promotion,” explains Mulešković. He warns this spending pattern risks long-term instability in Montenegro’s public finances, especially given the country’s economy heavily relies on the service sector without sufficient diversification.
Mulešković stresses that Montenegro has failed to diversify its economy, missing an opportunity to create stronger, more sustainable revenue streams for the state.
“Instead, expenses have only increased. At the same time, the government relies predominantly on indirect tax revenues, which carry significant risks. Any unexpected event — such as a poor tourism season — could quickly destabilize public finances,” he adds.
The European Commission’s recent recommendations call for limiting current expenditures — including salaries, pensions, and social benefits — while boosting revenue streams. Brussels also urges the rationalization of state-owned companies, the establishment of a fiscal council, and the appointment of vice-governors for the Central Bank.
Concerns about rising expenses linked to the “Europe Now 2” program and potential drops in tourism revenue could exacerbate the already high deficit, the report warns.
When asked if a downturn in tourism might force cuts in wages and pensions, Mulešković believes this is unlikely but acknowledges that some cost reductions and efficiency measures will be necessary as Montenegro progresses on its EU integration path.
“Our path to the European Union shouldn’t be jeopardized,” he notes. “But stability is crucial. Even after joining the EU, we won’t see overnight changes. Entering as a stable economy and system is essential for sustainable growth.”
Mulešković also comments on the skepticism from Brussels regarding Montenegro’s reported GDP inventory levels.
“It’s not the first time our data have been questioned, and there are valid reasons for audits. The rapid increase in GDP over the past few years is largely due to rising inventories, which masks weaknesses in other areas, such as the growing trade deficit,” he explains.
Montenegro’s GDP growth has mostly depended on increased household consumption, fueled by high personal debt. Meanwhile, exports have consistently held back growth, and inventory increases have offset these negative effects.
In summary, while Montenegro shows strong GDP growth on paper, underlying economic challenges and rising public spending highlight the urgent need for fiscal discipline, economic diversification, and revenue enhancement to secure long-term stability.
