Montenegro’s planned Euro model could put between 5,000 and 10,000 people out of work and threaten public finances, economist Davor Dokić warned. In his assessment, the programme’s planned net wage increases depend on reallocating existing budget resources and higher consumption, rather than production growth or the creation of new value. The potential impact on jobs would depend in part on whether the state helps businesses unable to meet the higher wage costs.
Dokić attributed the programme to Prime Minister Milojko Spajić and his team. He said the earlier Evropa sad 1 and 2 programmes, as well as the announced Euro model, raised serious questions about the sustainability of public finances. “We are not producing new value; we are reallocating existing funds available to us,” Dokić said.
One concern in the assessment is the redirection into general budget spending of earmarked revenues previously linked to the Pension and Disability Insurance Fund (Fond PIO) and the health system. A model relying on consumption and value added tax (VAT) receipts, instead of expanding production and the private sector, also carries risk. “The economy has no formula that everything will be financed from VAT and increased consumption,” Dokić said.
Fiscal pressures and inflation risks
Montenegro faces repayments of about 1.35 billion euros next year on previous loans and borrowing, while the new programme could add costs of around 700 million to 750 million euros. Dokić estimated that its total annual fiscal consequences could reach 1 billion to 1.2 billion euros, putting the projected commitments alongside the country’s upcoming repayment burden.
Another risk identified by the economist is the state’s inability to pay claims for VAT refunds. If the amount of money missing from public finances became seriously concerning, he forecast that raising VAT could be the first measure. “The first measure, when the amount of money we lack is really worrying, is to increase VAT,” he added.
Further price increases could follow economic disruptions, including the Covid epidemic and what Dokić described as aggression against Ukraine and Iran, which he said had occurred during the past six years. He warned that renewed increases in food and energy prices could add pressure to the state budget. Rising energy costs, particularly for diesel, could also trigger another wave of inflation.
Relying on future inflation to make higher nominal wages and budget obligations easier to bear would be very risky, in his view. Dokić also identified the possibility of International Monetary Fund (IMF) involvement if public finances collapsed because of the programme. Those risks sit alongside his concern that the proposed spending model depends on consumption-led tax revenue rather than a stronger productive base.
Business costs and employment
Micro, small and medium-sized enterprises are particularly exposed because they operate with low profits and have no financial reserves, according to the assessment. Companies with a high share of labour costs could face serious problems. The number of layoffs, Dokić said, would depend on the level of state assistance for businesses unable to pay the new wages.
Pressure on companies could result in fewer employees, the closure of some businesses and a decline in economic activity. Dokić identified small businesses and workers with secondary education as likely losers, while large companies could benefit; he described the model as ideal for banks. “Whoever can lay off surplus employees will do so,” he said, explaining that private capital is driven by profit.
The model would also mean state intervention in public finances, which Dokić considered incompatible with the market and a market economy. Setting minimum wages according to education level, he argued, would directly intervene in the labour market and devalue pay based on work, collective agreements and market conditions.
Spajić had not consulted social partners, including trade unions and the Employers’ Union, before the programme, Dokić said. He also faulted the prime minister for, in his view, prompting public condemnation of the private sector and creating an impression that companies had large cash surpluses they were unwilling to share with employees. That portrayal was “not true,” he said, adding that many small and medium-sized businesses were facing increased illiquidity.
