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Thursday, May 23, 2024
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Reviewing Montenegro’s economic outlook: Addressing challenges and reform plans

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Montenegro’s economic growth is projected to moderate to an average of 3.2% in the coming years, as per the assessment of Montenegro’s Economic Reform Program 2024-2026 approved by the European Commission. The primary obstacle to inclusive, sustainable growth, and competitiveness in Montenegro is identified as the informal economy. It is anticipated that the growth in tourism revenue will remain in single digits, while imports could surpass expectations, especially with investment plans like the construction of the highway.

According to the assessment, Montenegro continued to experience robust economic growth in 2023, but the pace is expected to slow down from this year until 2026.

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The buoyant tourist season and robust private consumption, coupled with a significant influx of foreign nationals, drove economic growth in 2023, estimated at 5.8%. However, high or moderate inflation and stricter financing conditions posed challenges to investments.

The document outlines a basic scenario foreseeing a slowdown in real GDP growth to an annual average of 3.2% from 2024 to 2026. This growth will be propelled by domestic demand, increased private and public consumption, and a rebound in investments.

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Net exports are unlikely to significantly contribute to GDP growth, given the expected deceleration in tourism services, which surpassed 2019 levels in 2023.

Imports might surge beyond expectations if investment plans, particularly the Bar-Boljare highway construction, materialize.

Key structural challenges for Montenegro include enhancing the business environment, promoting private sector development, advancing green and digital transitions, and fostering human capital.

Addressing weaknesses in the regulatory environment, informality, financial access difficulties, and improving oversight of state-owned enterprises are among the priority areas.

Montenegro’s energy transition aligns with the European Green Deal, emphasizing investments in green energy and decarbonization.

Digitalization efforts focus on enhancing digital services and cybersecurity.

Persistent labor market challenges, including low activity rates and high unemployment, especially among women, youth, and low-skilled individuals, continue to hinder growth and standard of living improvements.

These challenges are expected to be addressed through structural reforms outlined in the country’s reform agenda and the new Growth Plan for the Western Balkans.

The banking sector remains stable, with adequate liquidity and profitability levels.

Measures to preserve bank liquidity and solvency, adopted in response to the Russian invasion of Ukraine, have largely expired. The Central Bank strengthened supervision, requiring compliance checks before dividend payouts and retaining access to the European Central Bank’s repo line for liquidity needs.

The informal economy poses a significant barrier to inclusive growth and competitiveness in Montenegro.

Driven by institutional deficiencies, labor market weaknesses, and corruption, the shadow economy disproportionately affects legal enterprises, hindering innovation and sectoral development.

Efforts to combat the informal economy include introducing an integrated IT system for revenue management and streamlining trade regulations.

The Economic Reform Program serves as a crucial framework for Montenegro’s dialogue with the EU on macroeconomic, fiscal, and structural reforms.

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