IMF sounds alarm - Government is turning a deaf ear

Montenegro is facing a fiscal and economic collapse today. The warning comes from the most relevant global body for overseeing public finances - the International Monetary Fund (IMF).

Their latest finding is not just a technical report, but ear-splitting alarm: the deficit is breaking legal limits, public debt is climbing again, and the foreign trade gap threatens to swallow the economy. While world experts are sounding warning sirens, the Government of Montenegro, trapped in populism, remains deaf.

The illusion of an "economic miracle" is crumbling in the face of numbers

For years, citizens have been fed a story of “record growth and stability.” It is true that the economy has received a short-term, pro-cyclical tailwind - a strong recovery in tourism and an inflow of significant capital and consumption from new residents (Russia, Ukraine), which has been reinforced by uncontrolled fiscal stimulus. But the IMF now states: this growth was shallow, pro-cyclical and one-off, not based on long-term productivity. What politics spent in the years of the favorable cycle is now returning as a permanent structural deficit.

Real GDP growth for 2025 is estimated at only 3,2%, a modest level that indicates that the Montenegrin economy has already returned to its low potential. Inflation, the most dangerous enemy of standards, is gaining strength again: overall inflation in August 2025 reached 4,6%This increase in inflation is a direct consequence of the continued injection of fiscal stimulus into an economy that is close to full capacity, which the IMF condemns as economic irresponsibility.

The political elite demonstrated a complete lack of fiscal discipline and demolished the legal framework:

- The Fiscal Responsibility Law strictly stipulates that the general government deficit must not exceed 3% of GDP. The IMF forecasts that this deficit will reach 3% in 2025. do 3,7% BDP-aThis violation of the law calls into question the credibility of the country and its aspirations to enter the eurozone and is the cause of the country's very poor credit rating.

- Return to debt dependence: Public debt, which briefly decreased due to strong nominal growth (fiscal illusion), is moving uphill again, breaking through the legal limit of 60% and projecting itself at about 65% GDP with a growing tendency. The government continues with the policy of "spend today, worry tomorrow".

At the same time, the country is facing a crisis of external stability. The current account deficit, which shows how much a country spends more than it earns abroad, is rising to catastrophic levels. 18% of GDP in 2025This is a consequence of three key factors:

- Expansionary fiscal policy (increasing wages, demand, and consumption) led to a massive increase in demand for imported goods.

- The IMF has detected signs of "weakness" in the 2025 tourism season as well, which is a symptom of structural dependence on one sector, exacerbated by poor management and bureaucratic inefficiencies.

- This large deficit is financed by increasing borrowing, as FDI covers only a little more than a third of the gap.

The root of the crisis is not in global upheavals, but in domestic political populism and engineering and partisan spending of public resources. Instead of using the period of growth for structural consolidation, the authorities went for short-term political points: linear wage increases and the abolition of health contributions without coverage.

Programme Europe now is a textbook example of this fiscal illusion. Although it increased net wages in the short term, it destroyed the basic mechanism of financing health care, shifting that permanent, unsecured burden on the general budget. Thus was created permanent structural deficit in revenues.

The analysis shows that Montenegro lacks additional 5-6% BDP-a resources by 2035 just to cover the pressures of an aging population and pension obligations. This figure is a real bill for populism. The IMF warns sharply that it must “to firmly re-establish a close bond between productivity growth and wage growth” in order to avoid a new price spiral and further loss and decline in competitiveness.

The crisis in Montenegro is primarily a crisis of governance and institutions. The IMF directly warns of institutional sabotage:

- Undermining the Fiscal Council: The Fiscal Council, conceived as an independent guardian of budgetary discipline and an early warning mechanism, still not workingThe deliberate delay in operationalizing this body is a key element of a strategy of political discretion and irresponsibility. This warning alone is enough to cause the resignation of the Minister of Finance.

- Manipulation of the law: Fiscal responsibility rules are being dragged out, and the IMF advises urgent amendments to the Fiscal Responsibility Law to narrowed the definition of “highly exceptional circumstances” under which the law can be suspended. This indicates that the government is using the existing legal framework to legalize indiscipline and unproductive spending.

This state of institutions, permeated with political clientelism and weak governance, makes all key reforms, from healthcare to the pension system, difficult.

What the IMF's alarm means for citizens

The IMF's alarm is not an academic debate, but a direct message to every household:

- Increasingly expensive borrowing: Debt growth and violation of fiscal rules mean higher interest rates on government bonds, which also makes private (housing) loans more expensive.

- New taxes and levies: To patch the structural hole created by political adventures, it is necessary to either introduce new taxes or eliminate unproductive tax exemptions.

- Weaker social security: Pensions and healthcare are the first to be hit when the budget is overdrawn, requiring inevitable, painful reforms (linking the retirement age to life expectancy).

- Inflation eats up real wages: Procyclical policies that force consumption growth without productivity growth continue to generate inflation, erasing the effect of nominal increases.

Conclusion: The bill for populism is coming due

This IMF diagnosis shatters the narrative of “responsible government.” Montenegro is today a hostage to short-sighted populism, faced with fundamental macroeconomic and fiscal imbalances.

The choice is clear: either a radical, politically painful turn towards urgent fiscal consolidation (limiting the growth of the public wage bill, targeting the primary budget, reforming the pension system) and functional institutions, or the country risks irreversibly jeopardizing its chances for the eurozone and being forced into a long, painful, forced savings under the guardianship of creditors.

This will not be an "imported crisis" but a direct and inevitable consequence of domestic populism and unproductive spending. The numbers are public and clear: the deficit is breaking the law, the debt is growing, external imbalances are threatening, inflation is eating away at the standard of living. While the government turns a deaf ear, the bill is coming to the citizens.

Prof. Eugen Popović is a pseudonym, the author's name is known to the editorial staff.