Finance Minister Novica Vuković said in an interview for Voice of America that the implementation of the "Europe Now 2" program began with the increase of pensions in Montenegro at the beginning of the year, and that the correction of pension contributions and the reform of the Pension and Disability Insurance Fund are planned for the next period.
Regarding the arrest of the director of the Agency for the Prevention of Corruption, Jelena Perović, based on the findings of the budget inspection of the Ministry of Finance, which was forwarded to the Special State Prosecutor's Office, Vuković said that the purpose of the inspection is to control the use of budget funds and that it is ongoing in some ministries.
The Minister of Finance is in Washington attending the spring session of the International Monetary Fund (IMF) and the World Bank, with whose officials he discussed the state of the Montenegrin economy.
"Montenegro has shown a degree of resilience in the past two years. Therefore, as a small, open economy that depends on international turbulence and everything that happens in the environment, it still managed to preserve its macroeconomic framework. What is the advantage of Montenegro are the strong fiscal policies brought by the 44th Government and all that is foreseen through the fiscal strategy that we should bring in at the end of the second quarter one of the largest in Europe and also among the countries of the Western Balkans".
Voice of America: Where do you see the risks for the Montenegrin economy?
Vukovic: What the public would say at this moment is a risk for the Montenegrin economy is political stability, and we can recognize that somewhere as one of the factors that is necessary for investors to come to our country. A series of events that have happened and those that are to come show that now at this stage we cannot talk about risks, but it is indeed an excellent period for economic growth.
Voice of America: Here you spoke with IMF and World Bank officials. So far, Montenegro has not entered into an arrangement with the IMF. Will this continue to be the case?
Vukovic: The IMF is present in Montenegro every year through consultations and through Article 4 of their Statute, where that article sends information that is very important for investors, and for all of us in Montenegro. So, in addition to the technical, I would say expert assistance that we have with the IMF and which we will certainly continue, we will not use any other type of arrangement at this time, nor is it a topic when we talk about the credit arrangement.
Voice of America: What is Montenegro's cooperation with the World Bank like?
Vukovic: The World Bank is one of the very important partners and there are so many open projects with them. In the Ministry of Finance, we are talking about creating a base where fiscal strategies and macroeconomic policies will be adopted, and this is where their expert assistance is of the greatest importance. Also, they are very helpful for us in risk assessment when we talk about state-owned enterprises. With additional involvement, they are also present through the amendment of the law and the adoption of a new law on wages in the public sector. And what we are all involved in in the Ministry of Finance, ie the Directorate for the Tax and Customs System, together with me and the new management in the Tax Administration, is the reform of the entire tax system. The World Bank is our partner here, and we expect the final in 2025.
Voice of America: In March, Montenegro borrowed 750 million dollars by issuing government bonds. As the World Bank warns in a new report, significant old receivables are also due for collection, and all this in light of the existing high financing costs on the global market. Will Montenegro manage to pay off all obligations and is there a danger that the debt will get out of control?
Vukovic: What the IMF recommended was the development of a strategy for debt management in the medium term. We agreed on a partnership, and all that is necessary from the state and a responsible behavior when we talk about debt management is first to isolate the debt from the currency risk. So, first we made a hedging arrangement where we canceled the exposure in the dollar currency, and then, as responsible representatives in the government and the ministry in charge of servicing obligations, we entered the American market in March, issued bonds, and it is the most successful issue in history of Montenegro with the biggest noise of 5 billion, and I must emphasize that the funds that we collected for Montenegro on that occasion are exclusively intended for debts that are due and for development and investment in infrastructure projects and in the capital budget.
Voice of America: On what do you base your assessment that it is the most successful bond issue in the history of Montenegro?
Vukovic: The first interest of foreign investors in this case when we talk about the American market. They did not just decide to direct their placements to Montenegro. We created an environment, Montenegro was a country threatened by Manival, that is very important when we talk about the economy. We avoided that, we even avoided the observation period of the next year. And, then the interest rate that is the benchmark in addition to the successful issue is also the price at which you paid the funds. At this moment in the market, what is the situation, we have for the first time that in relation to the reference interest rate EURIBOR, which is at level 4, we have less than two percentage points according to what we received as the final derived interest rate, which is 5 .
Voice of America: Will Montenegro go into debt again and when can it be expected?
Vukovic: Through a simple legal obligation, which is the adoption of the law on the budget for 2024, the document accompanying the law is the decision on borrowing. Through the decision itself, one billion and one hundred and fifty million is provided for the servicing of debts that are coming due and for the creation of a fiscal reserve for the next period and for infrastructure projects. What we already have with the World Bank as an arrangement that lasts for several months is that DPL where policy developments are part of that credit arrangement. It is at the level of 80 million, when we are talking only about the World Bank, the first and second degree and that is something that we will take into account. Also, during the year, with the responsible management of public finances, there is a plan to develop the secondary domestic market in this or the next year and to simply provide the citizens of Montenegro with a project called a retail bond, which is an opportunity for the citizens of Montenegro to invest in bonds of Montenegro.
Voice of America: The World Bank points out that strong fiscal discipline is necessary in Montenegro and that there is very little fiscal space for any policy changes or large public investments. What is your ministry and government doing to keep the situation under control and will any major planned projects and policies be on hold?
Vukovic: No. Through the formation of the budget for this year, we exclusively decided on projects that are in the maturity stage. Therefore, what can be realized during this year was exclusively the subject of the inclusion in the realization process itself. Now, we also discussed this topic at these meetings and somewhere we came to the point that, through the fiscal strategy - which we will present as a document to the Parliament at the end of the second quarter - norms and legal frameworks are foreseen. All changes planned for this year will be supported and clearly defined there.
Voice of America: Montenegrin Prime Minister announces a new salary increase in Montenegro? When will it happen and is there money for it?
Vukovic: We started somewhere with the Europe now 2 program that the prime minister, Mr. Spajić, announced in his presentation. Already in January, the implementation of that program took place through the first pillar, which is the increase in pensions of the most vulnerable category in Montenegro, which suffered the hardest part of inflation. The second part is that we create an environment through a fiscal strategy like we created through a set of laws to increase pensions as a first step. Through the budget law, we defined the return of the excise calendar, the introduction of new excise taxes on drinks with added sugar, juices, non-alcoholic beers, games of chance - a new law that provided additional revenues. This responsibility will be presented to the parliament precisely in the phase of the fiscal strategy. And somewhere that program that was announced, which is a relief in the part of taxes and contributions when we are talking about employees - which will create the most competitive Montenegro in that sense when we are talking about businessmen and their expenditures - will be supported by new sources of income.
Voice of America: So the implementation of the Europe Now 2 program has begun?
Vukovic: The increase in pensions is part of the program, so we can announce that it is the beginning of the Europe now 2 program.
Voice of America: And what else is foreseen in that program?
Vukovic: As the Prime Minister said, in that part it is a correction when it comes to contributions, those that are borne by the employer.
VOA: Talking about pension contributions?
Vukovic: We are talking about the entire reform of the pension system. Minister Naida Nišić is working on a set of laws. When we talk about the PIO Fund, it does not have the role of a fund. It is simply an organ in the part of public administration that is of an evidentiary nature. In order to have a real fund, we must implement a reform so that the pension fund in the true sense of the word performs its function.
Voice of America: What does this reform mean?
Vukovic: What is a fear and something I have heard from the public is: Well, I won't have a pension or it will be abolished. No, of course, you have similar solutions in the environment, let's say North Macedonia has been implementing it for the past 15 years, and that is that it is simply defined through certain forms in which way you can manage your gross salary, i.e. your contributions and earnings when we talk about pension , and where the state makes sure that it is really regulated through the legal framework.
Voice of America: Does this mean the abolition of the PIO Fund as it is now?
Vukovic: This means its reform, i.e. that it will really get its role as a fund.
Voice of America: And is part of that the abolition of pension contributions?
Vukovic: I am not talking about abolition, but about correction. A correction will happen, and in what way it will be implemented, it is precisely the fiscal strategy that will define all steps and where the stability of public finances will not be threatened at any moment.
Voice of America: The World Bank report warns that any reduction in contributions, labor taxes without appropriate compensatory measures could affect the public finances of Montenegro. Are you worried that your plan will affect public finances and are you in contact with international financial institutions and what do they say about this?
Vukovic: Certainly that was the topic. The IMF was our guest in February and we had two weeks of intense talks about all the challenges in Montenegro and the solutions that (the government) wants to offer to the citizens. I will remind you that when the Europe Now 1 program was implemented, there was also a certain skepticism that the program would not succeed. However, out of all the officials and even the partners we are talking to, he declared that he really did achieve success. He achieved success because we reduced the gray labor market, because we increased consumption itself and influenced that economic growth that we talked about at the beginning of the interview. As I mentioned, with all sources of income that will be defined, only a correction can happen when we talk about contributions, and that will define that we are very responsible that there will be no risk to public finances.
Voice of America: And what kind of correction are we talking about?
Vukovic: The strategy is being developed and it is something that is planned until the end of this year, and it was announced during a series of previous presentations and something that the public is familiar with.
Voice of America: In the meantime, inflation in Montenegro is still growing, although certainly at a lower pace than the peak, and despite limiting the prices of some products, the prices in stores are still high for average citizens. Are you planning any other measures to combat the effects of inflation on citizens' pockets?
Vukovic: We made a decision within the government to carry out a correction, to simply react in this way when we talk about inflation. Inflation was at the level of 4,5 percent in February and it is in a downward trend. Some of the influencing factors are that now those foreigners who have increased consumption, that is, who in some way have already become residents in Montenegro, we simply no longer have that influx of increased consumption as happened in the previous period. So, in a natural way, additionally, inflation is suppressed, and the influx of foreign citizens in Montenegro is something that additionally strengthened the economy. They recognized Montenegro as their place of residence, most of them opened companies and entered the real estate market to buy apartments and houses where they live. So their choice is to stay long term.
Voice of America: And do some leave?
Vukovic: We have a permanent presence of Ukrainian, Russian and Turkish, German citizens. The season is now underway and our macroeconomic forecast is that the tourist season will be somewhere between 8 and 10 percent more successful than the previous year.
Voice of America: Just to bring you back to inflation, it seems to me that there was a growth of 5,5 percent in March. As I said, prices in stores are still high. Do you expect this to continue in the future and what can be done to keep prices at a level acceptable to citizens?
Vukovic: It is definitely an obligation of the government and a process that must be followed and cannot be out of focus. In some social dialogue with businessmen, we achieved the limitation of 500 items that are of key importance and life provisions that the population cannot live without, and the government's concern is that this process monitors and limits inflation as a factor that affects citizens' pockets.
Voice of America: In recent days, your ministry has been mentioned in the context of the arrest of the director of the Agency for the Prevention of Corruption by order of the Special State Prosecutor's Office, which formed the criminal case based on the findings of the budget inspection of the Ministry of Finance. The opposition criticizes the arrest and states that tens of thousands of new employees in the state administration should be investigated, multimillion-dollar, as they consider, fictitious contracts in the Coal Mine, malfeasance in the Elektroprivreda. Is any of this within the competence of the ministry and is there any kind of control?
Vukovic: When the 44th administration began work, the budget inspectorate had already existed for 11 years in some shape and form, but definitely not at the level of the task it was meant to perform. It was never in focus that the budget inspection should really be an instrument that is extremely important if you really want to control and legally regulate another mechanism, the spending of budget funds. With the great help of State Secretary Jovana Nišević, my participation and support, the team of the Ministry of Finance, the general director Radmila Ivanović and the budget inspectors who are independent in their work and inspection supervision, we created a program of all budget users for whom we intend to carry out controls for this year.
In addition to the Agency for the Prevention of Corruption, the Ministry of European Affairs, the Ministry of Defense and Health were there. We have created a set of budget users for whom we want to control this year. Every citizen, if he wishes, can give the initiative for someone to enter the budget inspection program. The Budget Inspection does not control the authorities, it controls the spending of budget funds. What is the continuation and obligation of the Ministry of Finance is that, if irregularities are found and if the finding defines spending outside the law - a finding that the very transparent and public ministry publishes on its website - it is mandatory to pass it on to the competent authorities, i.e. the state prosecutor's office. The further part of the procedure is up to them, and in that case they decided like this.
Voice of America: Were any irregularities discovered during the previous control of budget spending in the ministries you mentioned?
Vukovic: In the Ministry of Health, as far as part of the ministry itself is concerned, no anomalies were found, and the Ministries of European Affairs and the Ministry of Defense are in the process of being checked.
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