Europe > Montenegro

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International Monetary Fund. European Dept.
The 2024 Article IV Consultation discusses that the Montenegrin economy grew robustly by 6 percent in 2023 as consumption remained strong, tourism revenues exceeded pre-pandemic levels, and the influx of relatively affluent Russian and Ukrainian nationals due to Russia’s war in Ukraine contributed to growth. Growth is expected to moderate to 3.7 percent in 2024 and ease further to about 3 percent over the medium term. While system-wide indicators of financial stability are healthy, the Central Bank Governor needs to remain vigilant regarding lingering pockets of vulnerability. In order to better inform policy judgements, trends in domestic advantage, as well as the banking sector’s growing exposure to foreign securities need to be closely monitored. Diversification both within and away from the tourism sector can help decrease the vulnerability of the economy to shocks. A more conducive environment for a small and medium enterprises sector would enable it to benefit from the presence of skilled migrants in the country.
International Monetary Fund. European Dept.
The COVID-19 pandemic will hit Montenegro hard, as tourism is a key industry. Fiscal space has eroded in recent years due to large public capital outlays, and the COVID-19 crisis is creating new budgetary strains as health spending and other expenditures rise, while the economic contraction lowers revenues.
International Monetary Fund. European Dept.
This 2019 Article IV Consultation with Montenegro highlights that while the implementation of large publicly financed infrastructure projects has added economic growth, the accompanying use of fiscal resources has contributed to a large increase in government debt including guarantees, which reached 79 percent of gross domestic product in 2018. Despite the recent intervention in two non-systemic domestic banks, the overall banking sector exhibits improving asset quality, strong credit growth, high liquidity, and is well capitalized. Efforts to improve banking and Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) supervision are paramount. The emphasis should be a shift to risk-based tools for supervision in both off-site and on-site functions, and the establishment of a stronger supervisory structure within the central bank. The main priorities are reduction of the labor tax wedge and implementation of the new labor law that aims to increase labor market flexibility. Future decisions on the minimum wage should consider a broad set of indicators and require careful analyses of the impact of past increases.
International Monetary Fund. European Dept.
This 2018 Article IV Consultation highlights that Montenegro’s economy is growing strongly, boosted by the implementation of large investment projects, including the construction of the Bar-Boljare highway. Growth should continue over the medium term, albeit at a more moderate pace as highway construction ends. The IMF staff projects the economy to expand by 3 percent in 2018 and 2.5 percent in 2019, with fiscal consolidation also acting as a moderate drag on growth. Although the implementation of large publicly financed infrastructure projects has added to economic growth, the accompanying use of fiscal resources has contributed to a large increase in government debt. Economic growth should remain strong in 2018, notwithstanding fiscal consolidation, and maintain momentum over the medium term.
International Monetary Fund. European Dept.
This Selected Issues paper analyzes the long-term growth prospects and the output gap in Montenegro. Historical growth in Montenegro was driven mostly by capital with some contribution from labor, while total factor productivity (TFP) contributed negatively. Going forward, in the baseline growth accounting framework with no reforms, employment will likely have a slightly negative contribution because of demographic dynamics unless both labor force participation and unemployment improve significantly. The highway project will contribute to capital accumulation in the near term, but the contribution from capital accumulation will likely fall despite relatively high investment ratios. Based on historical performance, the contribution from TFP is likely limited and constitutes the main bottleneck for long-term growth prospects in the no-reform baseline.
Zsoka Koczan
In this paper we analyze how Western Balkans public finances adapted to the boom-bust cycle. Large capital inflows into emerging European economies during the mid-2000s resulted in rapid economic growth and convergence to EU income levels. This also resulted in improved fiscal positions of most countries, on the back of strong revenue performance. Yet, since the onset of the global economic crisis, many countries have struggled to adjust to the new situation of lower external financing and lower growth.
International Monetary Fund
This 2012 Article IV Consultation highlights that three years after the sudden end of Montenegro’s boom, there has been considerable progress toward recovery. Fiscal imbalances have proved difficult to rein in, reflecting a large fall in revenue after the collapse of the boom. Executive Directors have commended the authorities’ efforts to stabilize the economy, and welcomed the progress made since the financial crisis. Directors have also recognized the sizable public expenditure adjustment over the past few years, but underscored the need for further high-quality deficit reducing measures.
Mr. Brian Olden
,
Mr. Duncan P Last
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Mr. Sami Yläoutinen
, and
Ms. Carla Sateriale
This paper assesses the relative strengths and weaknesses of fiscal institutions in ten Southeastern European countries, using recent benchmarking methodologies developed by FAD. The assessment evaluates each country’s understanding of the scale of the fiscal adjustment challenge, its ability to develop a credible consolidation strategy, and its capacity to implement the strategy. Key institutional arrangements, are generally in place, including top-down budgeting and medium-term budget frameworks. Other institutional arrangements require further attention, including macro-fiscal forecasting, fiscal risk analysis, setting fiscal objectives, presence and role of independent fiscal agencies, and top-down parliamentary approval.