The government's plan for political survival: Advisor to the President of Montenegro on the budget proposal for 2025.

The capital budget "mirror of the inflation of political compromises and the complete absence of reform commitments"

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High current consumption: Mladen Grgić, Photo: predjejdek.me
High current consumption: Mladen Grgić, Photo: predjejdek.me
Disclaimer: The translations are mostly done through AI translator and might not be 100% accurate.

The budget proposal for 2025, as well as other government strategic documents, including the unadopted Fiscal Strategy on which the budget relies, are based on the same postulates - increasing consumption and ignoring the real economy. The capital budget is a mirror of the inflation of political compromises and the complete absence of reform commitments, while the financing of key sectors, such as education, health and tourism, has been reduced in percentage shares, which further threatens long-term economic growth.

He told "Vijesti" that Mladen Grgić, advisor for the economy and economic diplomacy of the president of the state Jakov Milatović.

"The budget is characterized by high current consumption and an insufficient development component, while tax revenues are mainly indirect taxes (VAT and excise taxes) that mostly affect the poorer population. The economy, while still transitional, based on personal consumption and indirect taxation, does not rest on long-term strategies but on short-term political goals. Thus, the budget is a consequence of adapting the system to the unsustainable promises of a political subject. Instead of responding to key challenges, it relies on optimistic assumptions, fragmented investment projects and growing indebtedness, indicating the absence of a strategic approach. That is why it is legitimate to ask the question about the long-term sustainability and the vision of the economic policy of Montenegro", said Grgić

As he said, the budget deficit, planned at 3,5 percent of GDP (278 million), exceeds the three percent limit set by the Maastricht criteria and the Law on Budget and Fiscal Responsibility, and in nominal terms the deficit is 40 million euros higher than in 2024. year.

"This shows a tendency to ignore basic fiscal rules. Ignoring fiscal responsibility laws sends the message that fiscal rules are still just a dead letter. Public debt is planned at more than 60 percent of GDP, which is also not in accordance with the Maastricht criteria or the Law on Budget and Fiscal Responsibility, and estimates that it will continue to grow in the next three years, both in absolute amounts and in terms of as a percentage of GDP. According to the budget proposal for 2025, the net public debt will increase by 440 million euros, while by the end of 2027 it will increase by more than 1,2 billion euros, which represents an increase of over five percentage points of GDP".

Growing indebtedness without a debt reduction plan

He stated that the total missing funds for 2025 are planned at 1,1 billion euros, or 14 percent of GDP, which is 390 million more than the previous year.

"These funds will be provided by additional borrowing or withdrawal of deposits from borrowings made during 2024, which further increases the pressure on the fiscal stability of the state. Interest expenses grow by 15 percent and reach 159,5 million euros. Therefore, Montenegro borrows more, although thanks to GDP growth and inflation, that percentage remains bearable. However, borrowing at higher interest rates, in order to refinance more favorable old debts, is harmful in the long term and puts an additional burden on the budget. And here we come to a kind of lottery. If growth is at the projected level of almost 5 percent, and inflation is above the European average (which the government expects will be the result of increased wages and current consumption), all of this will smooth out current problems and create a semblance of stability. However, if growth is at the level of 3 percent, as predicted by the IMF, and inflation does not remain at the planned level, Montenegro will face a significantly larger current deficit, which may threaten public finances. "Budget planning based on optimism, rather than reality, is a dangerous game with the state economy," Grgić said.

According to him, next year brings serious uncertainties. It is the year in which the Pljevlja Thermal Power Plant is shut down due to reconstruction, a year full of open questions for European economies, with its main engine - the German economy, and in addition, many countries are facing structural inflation, which reflects market disturbances and indicates unsustainability of economic models.

"And why is it important for Montenegro? Because Montenegro is the vestibule of the single European market and, as such, is directly subject to these challenges. All this would be politically easier to defend, and economically more sustainable, if a strong economic cycle was built in parallel - one that the government persistently announces, but never realizes. However, from the ambitious promises of two motorways, four expressways and a capital budget of 700 million euros per year, nothing remained but empty phrases. And this is indicated by the 50 percent fulfillment of the capital budget in the current year. The capital budget, as a key tool for economic development, is actually the most problematic segment of the budget. He does not offer the slightest hint of a way out of the economic tunnel. On the contrary, the capital budget is a mirror of the inflation of political compromises and the complete absence of reform commitments. It was concluded in such a way as to satisfy all parties and spheres of interest, whether at the state or local level, while limiting the focus on the most important projects for the country", emphasized Grgić.

Capital budget for everything and nothing

According to him, it is illusory to expect that Montenegro, technically and financially, can realize all the projects listed in the capital budget in the next five-year period.

"This is precisely why it is necessary to urgently establish clear and strategic priorities. However, instead, we are witnessing the dispersion of funds on anything and everything - which ultimately means that there will not be enough for anything. For example, in the capital budget we find items worth 300 million euros intended for the ski industry and winter tourism, but for the year 2025 an investment of only 15 million euros is planned. Even less - by a third less - is planned for the next two years. A similar thing is happening in the field of ecology, where projects have a total value of 135 million euros, and investments will only amount to 10 million per year in the next three years. This fragmentation of resources means that most projects will not be completed even in the next decade. It should not be reminded that there is less and less snow, and that developed countries are investing in the transition from winter to mountain tourism. On the other hand, ecology is one of the most challenging chapters in accession, and where large investments are required," explained Grgić.

At the same time, while the Bar - Boljare highway will absorb most of the money, the Adriatic-Ionian highway, which is crucial for the horizontal connection of the country and the relief of the coast, is not at all, the "Vijesti" interlocutor points out, priority funded in the next three-year period.

"With this kind of investment dynamics, neither environmental nor infrastructure projects can be completed within a reasonable time, and their partial realization will not bring the desired results. Without allocating at least 5-7 percent of GDP for infrastructure projects on an annual level, accelerated development remains an imaginary noun. For example, the Velje Brdo project, worth over one billion euros, receives only 2025 million euros for 10 - not enough even for basic infrastructure. This clearly shows another key problem: the pompous announcement of megalomaniacal projects without a realistic plan for their implementation. All in all, the budget proposal for 2025 looks more like plan for political survival than a serious strategic document. In addition, the financing of key sectors such as education, health and tourism has been reduced in percentage shares, which further threatens long-term economic growth", Grgić stressed.

He assessed that this budget represents a continuation of the policy of stagnation and short-term compromises, while key challenges remain unresolved.

"Without a fundamental change in fiscal policy, a change in the PAF-PAF policy to responsible and strategic planning, rationalization of expenditures and serious investments in strategic projects, in education and science, Montenegro will remain trapped in a vicious circle of political interests and economic stagnation."

If real parameters are negative, how is it possible for GDP to grow

Grgić states that the current tourist season shows weaknesses that seriously threaten the economic stability of Montenegro, a drop in income from tourism by 3,6 percent and a decrease in the number of overnight stays by 5,3 percent, with a noticeable increase in the prices of services in tourism, are clear indicators that the key sector of Montenegrin the economy is losing momentum.

"We can say that tourism, as the main driver of the economy, is entering a dangerous zone of stagnation, while increased prices further reduce competitiveness. At the same time, the tourism industry enters the next year with an additional burden in the form of an increase in VAT from 7 to 15 percent. At the same time, the trade deficit reached a record level, which further emphasizes the structural weaknesses of the Montenegrin economy. Production is losing its already fragile competitiveness, especially in sectors that have been suffering for years due to insufficient investments and weak incentives. Unfortunately, in the 2025 budget, subsidies for production and services were further reduced, although they have been at an unsatisfactory level for years. Attention was paid to production in the form of the introduction of excise taxes on still wines. "One of the rare products that we manage to sell on foreign markets," Grgić said

He pointed out that a key question arises - if real parameters are so negative, how is it possible for GDP to grow?

"Because economic growth is not the result of real economic growth, but inflationary pressure. Herein lies the key to our economic illusion. Inflation contributed to the growth of nominal incomes, the reduction of the real share of net debt and the creation of the illusion of growth. We sell and produce less, but earn more income due to rising prices. This inflationary spiral not only masks real economic problems, but also deepens them, leaving long-term consequences for the productivity and sustainability of the economy. It is necessary to urgently redefine development priorities and focus on increasing real production and competitiveness, in order to prevent further economic erosion. Unfortunately, there is no such thing in the budget", said Grgić.

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