Vuković: Economic history of Montenegro since the return of independence - buying time with excuses

The economic history of Montenegro from the return of independence to the present day can be described as two decades of systematic buying time using increasingly new excuses, said Miloš Vuković, economic analyst and director of Fidelity Consulting.

In an analysis he conducted for the Center for Democratic Transition (CDT), he stated that since the restoration of independence, Montenegro has changed more governments and fiscal paradigms than essential elements of its development model, and that instead of a consistent development strategy, a policy of short-term adjustments has been pursued.

The analysis, prepared as part of a dialogue initiated by the CDT with the Damar Institute to mark 20 years of independence, states that over the past two decades, improvisation has become the dominant method of economic management.

The analysis adds that every generation of economic policymakers has had a ready excuse for why serious structural reforms have to wait - sometimes because of a favorable economic climate that should not be spoiled, then because of a crisis that needs to be overcome, and because of an election cycle that does not tolerate unpopular measures.

The analysis assesses that instead of a defined concept of what the economy produces, exports, and how it strengthens its resilience, the economy is predominantly built on personal consumption, imports, the real estate market, seasonal tourism, and continuous borrowing.

In other words, it adds, growth was dominantly a function of money inflows, not productivity-enhancing skills.

As stated in Vuković's analysis, in the first years after the restoration of independence, aggregate indicators appeared solid, and a strong inflow of foreign direct investment, the opening of the country, and the rise in real estate prices created the illusion of accelerated convergence towards developed economies, and this illusion, he states, also created the first big excuse - if the numbers are growing, then why structural reforms.

"It turned out that growth was not based on an expansion of the production base or on growth in overall productivity, but on external inflows and credit expansion," the analysis states.

The next excuse, the document adds, came after the global financial crisis of 2008 and 2009, which confirmed the diagnosis.

"Instead of serving as a trigger for structural repositioning of the economy towards strengthening productive sectors, export diversification and strengthening human capital, the crisis was treated as a cyclical disruption, and then as another excuse - in times of crisis, namely, it is not the time for painful reforms," ​​the document adds.

This was followed, as it is specified, by the COVID19 pandemic and new excuses - that this was an extraordinary circumstance requiring extraordinary measures, so regular structural reforms were postponed again.

"Then came the Europe Now program, a package with significant implications for the structure of public revenues and long-term fiscal sustainability, with a new excuse - the argument that nominal income growth alone will kick-start the economy replaced a serious analysis of the effects on productivity, inflation and the current account," the statement concludes.