| Imagery Source: Wikimedia Commons / Ostrovsky Alexander, Kyiv |
| Information Source: The World Bank |
| Montenegro experienced strong post-pandemic growth, which moderated to 3 per cent in 2024 and is projected to remain at 3 per cent in 2025, amid global uncertainties. While public debt is sustainable, expected to average 65.6 per cent of GDP from 2025-2027, uneven debt repayments pose a vulnerability that requires careful fiscal management. EU accession remains a strategic priority, amidst progress on economic reforms and political stability. |
| Key conditions and challenges |
| Montenegro, with its small open economy and European Union (EU) aspirations, has demonstrated resilience despite being susceptible to external and domestic shocks. As a euroized economy, it relies heavily on fiscal policy for macroeconomic stability. The country's heavy dependence on tourism, coupled with environmental degradation, highlights the need for an improved approach to sustainable development. Following a 15 per cent contraction in 2020, the economy recovered quickly in 2021-23, averaging an annual growth of 8.6 per cent. However, growth slowed to 3 per cent in 2024, primarily due to a weaker-than-expected tourism season. |
| In 2022, Montenegro initiated significant fiscal reforms to stimulate job creation and raise wages under the Europe Now program, which included abolishing healthcare contributions, adopting progressive income taxation, introducing a tax allowance, and increasing the minimum wage. In 2024, the government implemented the second phase of this program, further raising minimum pensions and wages, and halving pension contributions. These measures, while leading to a tax revenue shortfall, even with increased indirect tax collections, are expected to keep the budget deficit at above per cent in the medium term. Even though Montenegro successfully reduced its public debt from 103.5 per cent of GDP in 2020 to 61 per cent in 2024, a lumpy debt repayment profile in 2025-2027 further adds to the fiscal challenges. |
| After three years of political instability following the 2020 elections which represented the first major power shift in 30 years, Montenegro's government, formed in October 2023 and reshuff led in July 2024, has made EU accession its priority. In June 2024, a positive Interim Benchmark Assessment Report marked a crucial step toward closing chapters and moving closer to EU membership. Yet, the delay in the 2025 budget adoption highlights continuing political challenges. |
| Recent developments |
| GDP growth slowed from 6.3 per cent in 2023 to 3.0 per cent in 2024. Although private consumption and investment remained robust, supporting growth, a 5 per cent decline in tourist overnight stays and stagnant industrial production due to a decline in electricity production negatively impacted net exports and overall growth. Meanwhile, employment continued to expand across all sectors. 2024 LFS data show an employment rate of 56.4 per cent and an activity rate of 64.3 per cent, with unemployment falling to 11.5 per cent. By December 2024, average net monthly wages had risen to €1,012, marking a 21.7 per cent y/y real increase following the pension contributions cuts. Inflation dropped to 3.4 per cent in 2024, a significant decrease from 8.6 per cent in 2023 . Poverty (income below $6.85/ day in 2017 PPP) is projected to have declined to 8.9 per cent in 2024. |
| The financial sector remains robustly capitalised and liquid, with strong credit growth. As of December 20244, the capital adequacy ratio stood at 19.4 per cent, and non-performing loans dropped to 4 per cent from 5.5 per cent year aIago024 |
| 2024, the current account deficit (CAD) widened due to lower service exports and a decline in net income accounts. Net foreign direct investment (FDI) grew by 13 per cent, covering just over a third of the CAD, with the remainder covered by new debt. |
| The fiscal deficit rose to 3.1 per cent of GDP in 024. Despite the absence of one-off revenues that contributed to a budget surplus of 0.6 per cent of GDP in 2023, revenues still grew strongly by 7 per cent. The largest contributions to revenue growth came from VAT and CIT. Meanwhile, expenditures increased by 17 per cent, primarily due to higher social spending (including higher minimum pensions) and increased capital expenditures. Public debt is estimated at 61.3 per cent of GDP, with around 4 per cent of GDP held in deposits. |
| Outlook |
| Amid an unfavourable global outlook and trade policy uncertainties, GDP growth is projected to average 3 per cent during 2025-27, primarily driven by private consumption and investments. Higher net real wages, credit growth, and solid employment are expected to drive a 3 per cent growth in 2025, despite the closure of the thermal power plant for reconstruction, which will require increased energy imports. The CAD is projected to widen to 18.5.5 per cent of GDP in 2025 due to higher energy imports, with just over a third of it financed by net FDI, the rest financed through new borrowing. Inflation is expected to soften to 2.9 per cent in 2025 and further to 2.3 per cent in 2026. Poverty is projected to decline to 7.5 per cent in 2027. Most of the poor are chronically unemployed, students, or out of the labour force, mainly in the northern region. Thus, reducing poverty requires targeted policies alongside sustained economic growth. |
| The fiscal deficit is expected to increase in 2025 to approximately 4 per cent of GDP before gradually declining to 3.6 per cent in 2027. Implementing additional fiscal consolidation measures would enhance fiscal performance. Public debt is expected to rise to around 65.8 per cent of GDP in 2027. Ensuring debt sustainability will necessitate fiscal discipline, particularly given the significant financing needs over over2025-27 and elevated external financing costs. Downside risks include extended geopolitical and trade uncertainties that could have significant additional adverse indirect effects on Montenegro’s growth through its main trading partners. |
| For the full document, click the link below. |
| Montenegro: Q1 2025 GDP |
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