Positive assessment of Spajić's Government if Europe Now 2 is sustainable

The Government's main program has yet to show results, and the World Bank, IMF, EC and rating agencies have already expressed reservations about its success.

71276 views 103 reactions 18 comment(s)
The economic program is just being tested: Minister of Finance Novica Vuković and Spajić, Photo: BORIS PEJOVIC
The economic program is just being tested: Minister of Finance Novica Vuković and Spajić, Photo: BORIS PEJOVIC
Disclaimer: The translations are mostly done through AI translator and might not be 100% accurate.

Whether the Government of Milojko Spajić deserved a positive assessment for the first year of work can only be known when the budget reports show that the sustainable economic program is Europe Now 2, i.e. that the increase in part of the taxes and excise duties can compensate for the loss of the budget due to the fact that halved contributions for pension and disability insurance.

The first preliminary data on whether the Europe Now 2 program is sustainable can be known when the budget report for November is finished, which should be published at the end of December, and full information about the sustainability of this program will be known with the report on the implementation of the budget in at least six months. next year.

The minimum pension has been increased from 296 to 450 euros, laws have been adopted that will increase the minimum salary from 450 to 600 or 800 euros for October, while contributions to pension insurance have been reduced by 20,5 to 10 percent, which will affect the increase in the October salary. by about six percent, to save employers about 15 million euros per month and create a deficit in the PIO Fund of 380 million euros in the following year. The amounts of social assistance have remained at almost the same level, so the poorest families with five or more members receive only 170 euros per month. The status of the so-called proportionate pensioners is still not resolved.

Still no risk analysis

These are the main economic effects of the Government and the new parliamentary majority in the past year, but there is still no risk analysis of whether the reduced income from contributions will be compensated by other measures, the increase of the VAT rate on part of services and products from seven to 15 percent and increasing and introducing excise taxes and various other duties.

In their commentary on the Program of Economic Reforms, the European Commission pointed out that the reduction of the pension contribution rate will represent a great risk and may have serious consequences for the fiscal sustainability of Montenegro.

Now the deficit of the PIO Fund amounts to about 30 percent of the total amount needed for the payment of pensions, which is covered from other budget revenues, while next year, according to the Government's plan, the deficit will reach 380 million or 51 percent of the money needed for the payment of pensions.

In the exposition, Spajić states that he will work on strengthening the resilience of the Montenegrin economy and improving financial stability, but he did not announce at the time that he would halve contributions for pension insurance, which is the most stable budget income after VAT.

The European Commission has warned that this will lead to financial instability, and that the reduction in contributions "will require a significant increase in indirect taxes to offset the costs".

The World Bank also had reservations about the success of Europe Now 2, which said that their projections show that the deficit will be slightly larger than what was foreseen in the fiscal strategy.

While the International Monetary Fund said that Europe is now 2 a risk to state finances and that the reduction of contributions to PIO will create a hole in the budget, due to which the VAT would have to be increased to 30 percent.

Mnogo koraka do Singapura

"Our vision is Crna Cora as the Switzerland of the Balkans and the Singapore of Europe," Prime Minister Spajić wrote in an exposé a year ago, setting himself very high goals.

GDP per capita in Singapore and Switzerland is almost 100 thousand euros, while in Montenegro it is barely 12 thousand.

"The economic potential of our country, with adequate management, based on equal opportunities and dedicated work to create a new model of economic development of Montenegro, is a guarantee of increasing the standard of living and achieving the well-being of all our citizens. "Strengthening the resistance of the Montenegrin economy to increasingly frequent crises, through the improvement of macroeconomic and financial stability, is the basis for the implementation of reforms that will position Montenegro as one of the most attractive countries for investments in the world," said Spajić a year ago.

The value of foreign investments in real decline

A new model of economic growth was not offered, the growth of salaries and pensions is achieved through administrative measures - changes in the law and the transfer of part of gross to net earnings, without strengthening economic activity with a significant decrease in exports.

All the measures to reduce the workload did not lead to large foreign investments in companies. In eight months of this year, foreign direct investments amounted to 575 million euros, which is only 14 million or 2,5 percent higher than in the same period last year. Inflation in the period January - August this year, compared to the same period last year, amounted to 4,3 percent, so the real value of foreign investments is in decline.

Half of those investments, 285 million, were invested in the purchase of real estate, mostly from citizens of Serbia, Turkey and Russia. During this period, foreigners lent two hundred million euros to their companies in Montenegro, which is considered an investment. A total of 71 million was invested in domestic companies and banks, and the majority of 44 million were invested by citizens of Serbia and Russia.

The tourism tax has been increased, but the problems have not been solved

A significant part of the Prime Minister's exposition was tourism, where he promised the Government's strategic commitment "to develop Montenegro as a high-quality year-round tourist destination with a recognizable image on the market in the future."

He also promised to create an adequate strategic framework in this area and to base the development of tourism on strategic planning with the active participation of the tourism industry.

However, at the proposal of the Government, the VAT on accommodation in hotels was increased, while no significant problem for the tourism industry was solved, such as a permanent seasonal worker, better air accessibility, more money for the promotion of the tourist offer, the fight against the gray market and unfair competition,...

Representatives of the tourism industry were unanimously against the increase of VAT on hotel accommodation, stating that the 15 percent rate will lead to an increase in accommodation prices by about 7-8 percent, that it will increase the non-competitiveness of the Montenegrin tourist offer because it is in competing countries with Croatia, Albania , Greece, Turkey,... that tax at the lowest rates - usually five percent but not exceeding ten percent.

Big kudos for a still low credit rating

The government cited the increase in the credit rating of the S&P agency from B to B+ and Moody's from B1 to Ba3 as its significant success in the field of economy.

"After 17 years, for the first time since 2007 - the largest credit rating agency S&P increased the credit rating of Montenegro, from B to B+. That move, which happened in only 10 months of the Government's work, will reduce the interest paid by our state, citizens and the economy and will make Montenegro more attractive for serious investors", Spajić said after the S&P decision.

However, this is just a return to the ratings that Montenegro had ten years ago, which was given based on the economic results of the last year, in which the previous Government of Dritan Abazović participated.

Also, this level of credit rating is still for countries that have speculative credit capabilities and high credit risk. Significantly lower interest rates on state debt can only be expected when Montenegro receives an investment credit rating, which would require four more consecutive increases in the credit rating.

At the beginning of October, S&P gave Serbia a rating of BBB-, which is four levels above that of Montenegro and is considered an investment credit rating. Ten years ago, Montenegro and Serbia had the same credit ratings, but Serbia had significant improvements while Montenegro stagnated, so it is still at the speculative rating level.

In the explanation of its rating, Moody's stated that the positive outlook due to economic growth in 2023 is balanced with the risks due to the tax reform, as well as that "it is unclear whether compensatory income measures will be sufficient to offset the budgetary costs of the reforms" due to the reduction in contributions.

According to S&P, Montenegro has the same rating as Bosnia and Herzegovina, and is one level below Albania.

Accelerated preparations of ten highway routes and expressways, by 2030 only 24 kilometers certain

The government administration and Monteput launched tenders for the preparation and conceptual solutions of ten sections of the highway and expressways, while they finalized an agreement with the European Union and the European Bank for Reconstruction and Development EBRD on their participation in a grant and a favorable loan for the construction of the next section of the highway from Mateševo ​​to Andrijevice of 24 kilometers.

The application of this project to EU funds was initiated by the Government of Duško Marković six years ago.

At the end of last year, Spajić said that the plan is for Montenegro to complete the construction of both highways and four high-speed highways by the end of 2030. That is a total of 480 kilometers, which would cost eight billion euros.

According to current announcements, the EBRD could choose the contractor for the section to Andrijevica at the beginning of next year, and the deadline for design and construction would be five years.

Other sections do not even have conceptual projects, so it is likely that by the 2030 deadline, Montenegro will only get these 24 kilometers of highway.

BiH now has over 250 kilometers of highways.

Bonus video: