Investments – capital budget

Written by: Novica Vuković, Minister of Finance

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Photo: Ministry of Finance
Photo: Ministry of Finance
Disclaimer: The translations are mostly done through AI translator and might not be 100% accurate.

Infrastructure development is the foundation of sustainable economic progress in Montenegro. By investing in infrastructure, we not only improve the daily lives of citizens, but also create a basis for attracting private capital and new investment ventures in the economy. In order to realize the full potential of the economy, we are committed to infrastructure development, with special emphasis on investments in the transport network, health and education sectors. Public investments are a generator of economic opportunities, and in this sense they are also our key determinant when planning budget spending.

In an effort to strengthen the institutional framework that pursues infrastructure investment policy, the Government, at the proposal of the Ministry of Finance, adopted a Decision on the establishment of the Public Investment Council, which adopted a series of conclusions aimed at more efficient coordination and implementation of activities in the area of ​​capital projects and other infrastructure development projects.

Also, in the past year, the Ministry of Finance, within its competence, carried out a series of activities aimed at developing the process of planning and managing capital projects implemented from the Capital Budget of Montenegro, as well as improving public investment policies in cooperation with implementation units.

In order to implement infrastructure and other development projects that will boost economic growth, our strategic document, the Fiscal Strategy for the four-year period (2024-2027), plans to invest as much as 2 billion euros from the budget of Montenegro for the implementation of capital projects. The aforementioned investment amount is planned to be financed from general budget revenues (through the Capital Budget of Montenegro), around 500 million euros from donations and grants from the European Union, and additionally from dedicated loan arrangements with relevant international lending institutions (CEB, EBRD, EIB, etc.).

Ministry of Finance
photo: Ministry of Finance

Therefore, our task at the Ministry of Finance is to create fiscal space for large infrastructure projects, both for the continuation of the construction of the already started Bar - Boljare highway, the section from Mateševo ​​to Andrijevica, and for the design of the remaining sections and other planned expressways towards Bosnia and Herzegovina and along the Montenegrin coast, for the construction of the Adriatic-Ionian highway, but also other significant main and regional roads. In the coming period, our focus will also be on the completion of large infrastructure projects in the field of tourism that have already been started, such as the ski resorts in Kolašin, Bijelo Polje, Mojkovac and Rožaje, as well as the inclusion of new ones, such as the construction of a gondola in Kolašin and a cable car from Lovćen to Cetinje (a continuation of the existing cable car route from Kotor to Lovćen).

Ministry of Finance
photo: Ministry of Finance

We will also continue with significant investments in the field of healthcare, so in addition to the ongoing reconstruction of the hospital in Bijelo Polje and the construction of a new hospital in Pljevlja, we will make additional efforts to secure funds for the construction of the University Hospital in Podgorica.

This is an important step towards achieving long-term stability and strengthening competitiveness. While at the same time improving the living standards of citizens, we are providing modern conditions for new investors, who recognize the significant investment potential in Montenegro.

Ministry of Finance
photo: Ministry of Finance

Through joint efforts with local governments, we will strive to establish a more developed network of local utility infrastructure as the basis for a healthy and functional environment. In this regard, for 2024, the Ministry of Finance has allocated 20 million euros to assist in the implementation of infrastructure projects and local roads, with a special emphasis on less developed municipalities. Our focus, in addition to large infrastructure projects, is also the needs of every citizen of Montenegro, therefore we are dedicated to improving living conditions in less developed areas.

One of the main problems that investors face is complex bureaucracy, which often involves long administrative processes. I believe that a well-organized regulatory framework, clear and efficient procedures implemented before public bodies, in terms of payment of fees, administrative procedures of consents, permits, etc. will further strengthen investment and make Montenegro more attractive for foreign investment.

Ministry of Finance
photo: Ministry of Finance

Transparency and electronic communication between government bodies are important elements for eliminating barriers that hinder investment. Strengthening these aspects creates a favorable business environment that attracts domestic and foreign investors. Only by working together and with an open approach and efficient action can we further improve the system and attract both domestic and foreign investors. In this sense, we will design our further activities and public policies, aimed at citizens and the economy and their needs.

As a reminder, in the first quarter, the Government adopted a new Decision on the Development of the Capital Budget, which improved the process of planning and developing the state capital budget, as well as clearly defined procedures for including new capital projects for financing from the state budget. Additionally, the Ministry of Finance, through the upgrade of the budget management information system, established the Register of Capital Projects Financed from the State Budget, which provides a clear overview of the current implementation status and potential problems in the implementation of each project from the Capital Budget on a monthly basis. In this regard, for the first time, public quarterly reporting on the implementation of the Capital Budget was introduced, which the Government adopts and submits to the Parliamentary Committee for further information and consideration. Considering that the capital budget spending for the first 10 months was at the level of 68%, as well as the usual payment dynamics in the last quarter, I expect maximum implementation by the end of the current year.

I would also like to remind you that in 2024, we planned 237 million euros for the implementation of the Capital Budget, which is 46 million more than in 2023, and that the proposed Budget Law for 2025 will have a Capital Budget of around 280 million euros. The above clearly indicates our determination in the Government to allocate an increasing amount for capital investments, especially for road infrastructure, but also in the areas of education, health and environmental protection.

FAVORABLE TAX SYSTEM

Montenegrin tax policy is based on the principles of creating a sustainable and stable tax system, which primarily aims to preserve financial stability and create a competitive and predictable business environment, suitable for attracting foreign investments. Tax policy is aimed at creating normative solutions in the field of direct and indirect taxation, strengthening tax administration, while the continuation of the negotiation process with the European Union is undoubtedly one of the priorities, bearing in mind that the tax legislation of Montenegro is being largely harmonized with the tax system of the European Union.

In line with our commitment, we point out the importance of the measures implemented by the Fiscal Strategy for the period 2024–2027, which amended the set of tax regulations and implemented the main objectives of tax policy related to securing additional budget revenues, continuing to harmonize tax policy with EU directives (VAT and excise duties) and improving the business environment, making us a country with one of the lowest tax burdens on labor. In addition to the above, by amending the Law on Mandatory Social Insurance Contributions, which reduced the PIO contribution charged to the employee from 15% to 10% and the PIO contribution charged to the employer from 5,5% to 0%, we ensured an increase in net earnings for all employees in Montenegro. Also, the Law on Personal Income Tax provides for the expansion of the tax coverage with two new sources of income, the improvement of legal solutions that in practice caused doubts among taxpayers who applied these legal solutions, and which will ultimately affect the improvement of the business environment.

In the area of ​​indirect taxes (VAT), with the Law on Value Added Tax, we have further aligned ourselves with EU directives, which includes the introduction of a second reduced rate of 15%, as well as increasing the level of the flat-rate compensation that farmers receive in accordance with the law, from 5% to 8%, which represents a stimulating measure for the agricultural sector. Also, with this law, we have prescribed the abolition of the 0% VAT rate on the supply of products and services that represent a tax expenditure of the state and at the same time give preferential status to market participants compared to others.

In terms of excise policy, our basic commitment in this area will be primarily directed towards continuing to harmonize the legislative framework with EU directives, strengthening capacities with the aim of reducing the "grey economy", due to illegal trade in excise products on the market, which creates unfair competition but also reduces the revenues that the state generates from excise tax collection.

PUBLIC-PRIVATE PARTNERSHIP

Public-private partnership in Montenegro is based on the best international foundations. Our primary goal here is to create a favorable climate for investors, which, in terms of principles and policies, will be similar to the one in which they develop their projects in Western European countries, by adopting standards that represent good practice in developed countries.

Taking into account the above, the current focus of us in the Government and in the Investment Agency, with which we have intensive and excellent cooperation, is on a better understanding and more efficient implementation of the regulatory framework. Therefore, the task ahead of us is to improve the knowledge and skills for the application of regulations and standards, in the creation of new solutions and higher-quality projects, in the function of the development of society as a whole. In addition, raising awareness of the role and importance of public-private partnerships at the level of local governments is of utmost importance, especially in less developed parts of Montenegro, which abound in unused resources due to insufficient funds for their valorization.

Within the recommendations for local governments, projects that should be considered in terms of implementing investments under the public-private partnership model are in the areas of: public lighting (ESCO public lighting projects), waste management, parking garages and local public roads, and when it comes to recommendations at the state level, the emphasis will be on state road infrastructure, bypasses, tunnels, bridges, airports, etc.

I would particularly like to commend the example of the Royal Capital of Cetinje, which has initiated a public-private partnership project for the construction (renovation) of the protected cultural property of the hotel "Lokanda", with a square and an underground parking garage. The Royal Capital has previously fulfilled all legal requirements and obtained all necessary approvals for the construction project, thus becoming the first local government to implement projects based on the public-private partnership model in Montenegro. In addition to its cultural and historical significance, the construction of the hotel "Lokanda" will further improve the tourist and accommodation capacities in the city and create conditions for the creation of new jobs, which makes us particularly happy.

Strategic investing

In terms of support for strategic investment, the Government has also prepared a Draft Law on Strategic Investments, which plans to create a new concept of strategic investments and regulatory coverage of all important aspects of activities to attract and support important investment projects.

What is particularly important from the perspective of investors is the establishment of clear, transparent and simple procedures, which aims to improve the investment climate and facilitate market access. The draft Law on Strategic Investments seeks to encompass all important aspects of activities to attract and support important investment projects. With an understanding of the motives and drivers of strategic investments, the specificities of certain types of strategic investments, as well as administrative challenges, from the moment the project is presented, this regulation attempts to create a new approach to strategic investors and their investment ideas in Montenegro.

(Ministry of Finance)