In the next three years, Montenegro can have stable economic growth rates of about three percent per year, continued growth of citizens' standards, increase in state revenues, growth in investments and reduction of public debt, and the biggest risks for the realization of this plan are political instability and postponement of structural reforms.
This is stated in the Macroeconomic and Fiscal Policy Guidelines for the period 2023-2026. year, which was adopted by the Government last week, and prepared by the team of the Ministry of Finance.
The authors of the analysis expect that this year will be a record year in terms of tourist consumption, but also that in the coming years, income from tourism will grow at a rate of ten percent annually. This conclusion is related to the announced investments in tourism and related activities, and in addition to traffic, it would also affect the expected extension of the tourist season.
"The biggest driver will be private consumption, due to the growth of income from tourism, high growth of remittances (sending money from abroad), growth of employment and earnings, along with an increase in lending. Household personal consumption will be strongly encouraged by new budget measures to increase wages in a large part of the public sector and by a significant increase in funds for social benefits, which will also increase public consumption in the coming period," the guidelines state.
In the next three years, an investment growth of 3,8 percent of GDP per year (about 230 million euros) is expected, based on the announced plans for investment in tourism, renewable energy sources and infrastructure. They also expect that the relatively high level of foreign direct investments will continue, which in the medium term will make up a little over eight percent of GDP, which is about 500 million euros.
It was also stated that the growth of income from tourism, in the next three years, will completely neutralize the negative balance of goods imports, which until now was an item that reduced GDP growth.
"Tourism is expected to make the biggest contribution to economic growth, whose revenues will directly and indirectly account for about one fifth of the total economic value in the medium term. It is expected that tourism will exceed pre-pandemic revenues already in 2023, and in the medium term will grow by an average of 10 percent per year, which assumes a realistic and achievable assumption. Diversification of the key source markets of tourist visits and extension of the season would additionally contribute to higher incomes and a faster rate of economic growth," the document stated.
It is expected that the growth of exports will be driven by electricity, the metal sector, as well as that new plants for the production and processing of food and beverages will also contribute to this.
The data from the last report of the International Monetary Fund (IMF), in which the forecasts of the medium-term growth of the global economy are the lowest in the last few decades, are cited as risks for the realization of these projections.
"The most important thing for Montenegro is the development of the economy of the Western Balkans and the Eurozone, in which, according to the IMF, a significant slowdown in growth, even a recession for some European economies is also expected," the guidelines state.
The expected growth of the economy would lead to the share of public debt in GDP falling from 70,7 percent at the end of last year to 61,25 percent at the end of 2026.
Political risks can collapse the economy
The risks for realizing these projections are divided into political and economic.
"Political instability can negatively affect the credibility of policies and credit ratings on the international and domestic capital markets, and negatively affect the possibility and conditions of providing the missing funds for financing the budget," stated political risks.
Another political risk is that members of the Assembly adopt legal solutions, the implementation of which would represent a significant fiscal burden, as this may have a negative impact on the sustainability of public finances. In recent years, it has happened that deputies do not vote for the introduction of some new tax rates or for their increases, while they only propose and adopt proposals that increase the costs of the state, such as the growth of social benefits and the introduction of new categories, extraordinary increases in pensions, the introduction of new capital investments off plan...
Among the economic risks are the postponement of the implementation of structural reforms such as reforms of the tax system and tax institutions, reform and reduction of public administration, digitalization... Risks such as weaker dynamics of planned investments, delays in the implementation of measures aimed at increasing state revenues are also mentioned. ..
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