In the next three years, 2023, 2024 and 2025, the state budget will have to pay the loan principals of 1,55 billion euros that were taken out in the past years, while in this period another 430 million euros will be paid for interest. In these three years, the state plans to borrow 2,35 billion in order to be able to pay back the debts that are due, finance the capital budget of 745 million euros and ensure the stability of public finances.
This is stated in the Proposal for Macroeconomic and Fiscal Policy Guidelines for the period 2022-2025. which was recently adopted by the Government.
According to the data from this document, the expected public debt at the end of this year will amount to 4,26 billion euros or 79,6 percent of the current gross domestic product (GDP), while at the end of 2025 it would amount to 5,13 billion euros or 81 percent of GDP. and which is estimated for that year.
The main goal of the fiscal policy in this period, as stated, is the stabilization of the macroeconomic environment, ensuring the sustainability of public finances and creating conditions for dynamic economic growth.
The guidelines project economic growth at the level of an average of over six percent in the period 2022-2025. continuous reduction of the public finance deficit from an estimated 7,65 percent in 2022 to four percent of GDP in 2025, investment in financing capital projects of around 1,3 billion euros in the period 2022-2025 and ensuring the sustainability of public debt in long term.
"Taking into account the continued strong presence of pressure on public finances and the limitation of fiscal space, in the coming period it is necessary to implement additional measures of fiscal consolidation that will ensure better collection and realization of additional budget revenues, as well as optimize public spending while structuring it in favor of public investments , in order to ensure the sustainability of public finances in the long term, and at the same time create fiscal space for providing support for dynamic economic growth", it was stated in the Government document.
Deputies gladly voted for lower incomes and higher expenses
Due to the fact that this year the Parliament adopted several laws that reduced taxes and excises, and thus state revenues, and at the same time adopted proposals that increased salaries, wages in part of the public sector and social benefits, the deficit increased by about 150 million euros. , that is, from the planned 5,1 percent of GDP to 7,6 percent. In order to fulfill the legal basis for these payments and provide money for those budget items, it is necessary for the Assembly to adopt a budget rebalance. However, the new political crisis, and the possible election of a new government, may call that into question. The debate on no confidence in the Government is scheduled for August 19.
"The projected increase in budget expenditures in 2022 compared to the initial plan in the amount of about 150 million euros is a consequence, first of all, of the increase in expenditures based on the application of legal solutions that were not planned by the annual budget law or were not planned to a sufficient extent , as well as the needs to replace the obligations received in the health sector", it was stated in the Government document.
This deficit in the state coffers is most affected by the assumption of the debt of the Health Insurance Fund of 64,5 million, the missing amount for increasing pensions of 25 million, the missing amount for increasing salaries in health and education by 24 million, the missing amount for compensating former beneficiaries of benefits based on the birth of three or more children around seven million euros...
Lower economic growth is now expected
Last year, the government estimated that this year the economy would grow at a rate of around 6,4 percent. However, the new preliminary estimates of the Ministry of Finance projected a lower growth of 4,7 percent. Based on that, the estimates for the following years were corrected.
"According to the basic scenario, the projected average real growth of the Montenegrin economy in the next three-year period will amount to 3,8 percent, with rates of 4,5 percent in 2023, 3,8 percent in 2024, and 3,1 percent in 2025. Forecasts of economic growth for the next period are conditioned by the strong expansion of export activity, based on the high growth of the service sector, but also the increased activity of the export of goods, the dynamism of private consumption due to the strong growth of wages and the expansion of credit activity, as well as the start of a new investment cycle, which will determine the creation higher added value of the domestic economy", it was stated in the Government's expectations.
Improve the work of tax collectors and inspections
The reform of the Revenue and Customs Administration is being announced, which would affect the improvement of the business environment, more efficient collection, and thus the increase of public revenues, as well as the increased inspection supervision and the implementation of the system of electronic monitoring of fiscal registers, which will reduce the scope of the "gray economy", which will have a positive impact on public revenues.
"Reforms in the budgeting process and in the area of public finance management increase fiscal discipline and transparency of public finances, which positively reflects on the main fiscal indicators.
With the implementation of the new legislative framework in the field of organizing games of chance, conditions are created for collecting additional revenues compared to those planned on this basis. The potential revenue collection based on the long-term use of the "Airport of Montenegro" can affect the increase of total public revenues in the medium and second term", it was stated in the expected positive economic impacts on public finances in the next three years.
Delaying reforms can be fatal
Public finances, as stated, can be negatively affected by the limited fiscal space, weaker dynamics of the realization of planned investments, as well as the postponement of the implementation of structural reforms.
"Given the continued presence of the Covid-19 pandemic, there are moderate to high risks to economic recovery and growth, threats of new virus mutations could potentially further threaten the regional outlook, which could consequently be reflected in further congestion in supply chains, higher producer prices and weak performance on the labor markets, which can have a spillover effect on the Montenegrin economy", the document states.
A potential risk for the weakening of the economy is the further intensification of external inflationary pressures, which are strongly reflected in domestic prices.
They do not mention the continuation of the highway until the end of 2025.
In these guidelines, which plan public finances for the next three years, there is no mention of the construction of new sections of the highway.
Only in a few places is the completion of the first section from Podgorica to Mateševo stated, the benefits from it are mentioned and the need to pay the remaining amounts is noted.
"Finalizing the priority section of the highway and putting it into commercial use will have a positive impact on regular debt servicing, better connectivity between the northern and central and southern regions, and greater touristic and economic activity," the document states.
However, in terms of possible negative economic risks, it was also stated that "implementation of large investment projects that affect a significant increase in public debt could negatively affect the sustainability of public finances".
It is also stated that, bearing in mind that the construction and financing of the priority section of the highway was completed in 2022, within the capital budget for 2023 and the following period, "additional fiscal space will be created for the start of the implementation of new capital projects, as well as for the faster dynamics of the execution of works of already started projects".
As stated, a guarantee deposit of 2024 million euros is due for payment in 22 based on the contract for the design and construction of the Smokovac - Mateševo highway section, if no construction errors are detected.
By the end of the year, the project of the new section from Mateševo to Andrijevica should be completed, as well as the profitability study of completing the highway to Boljar, because without it, you cannot apply for money from EU funds.
The Government announced the possibility that the next sections could be given to concessionaires who would build them and then collect tolls for 20 or 30 years.
Political instability will increase interest rates on new borrowing
As a major political advantage that will affect economic stability and growth, progress on the path to accession to the European Union (EU) was mentioned, which will affect the growth of investor confidence, the improvement of the business environment and access to EU funds.
However, the political risks are much higher.
"Political instability can affect the credibility of policies and the credit rating of the state on the international and domestic capital markets, and negatively affect the possibility of securing the missing funds for financing the budget. The adoption of legal solutions, the implementation of which represents a significant fiscal burden, may have a negative impact on the sustainability of public finances. Geopolitical risks at the global level can have a negative impact on the entire world, and consequently, on the Montenegrin economy", it was stated under the heading negative political influences on the fiscal risks of the state budget.
Bonus video:
