major macro economic indicators
|GDP growth (%)
|Inflation (yearly average, %)
|Budget balance (% GDP)
|Current account balance (% GDP)
|Public debt (% GDP)
(e): Estimate (f): Forecast
- Growing tourism
- EU application supported by economic reforms (Europe Now programme)
- Use of the euro to avoid exchange rate crises
- Small, undiversified economy with a weak export base and dependence on tourism
- Structural current account deficit with a large trade deficit, having generated high external debt (~160% of GDP in 2021, 69% for its public share)
- Corruption, informal economy, emigration and unemployment (14.6% in Q2 2022)
- Use of the euro may lead to asymmetric shocks, with no credible early prospect of participating in European economic and monetary governance
Growth driven by tourism and consumption
Faced with a poorly diversified economy and emigration caused by poverty, the government is trying to promote a protective social system, which should benefit the household purchasing power in 2023. Although imported inflation automatically materialised in 2022 after the invasion of Ukraine and consumption (75% of GDP expected in 2022) was fueled by high imports of goods, government measures (abolition of employee health contributions [4% of GDP], an increase in the minimum wage from €250 to €450/month) have strongly remunerated the labour factor, thereby prompting the continued jobless rate. In 2023, further reductions in electricity prices combined with planned increases in family and old-age pensions should boost household spending.
Construction also remains a growth engine. A section of the road between the port of Bar and the Serbian border was commissioned in 2022 with a $1 billion loan from China's Eximbank to open up Montenegro to its neighbour and largest trading partner, Serbia. However, financing on the project is incomplete and has already crowded out other projects due to the state's high debt. Construction orders are nonetheless driven by the infrastructure and accommodation needs of the country’s seaside resorts. Long seen as a potential addition to its industry, the existence of offshore hydrocarbons has still not been confirmed by exploration drilling carried out in 2022.
Public expenditure should therefore remain at a high level (45% of GDP) in the short term. Political instability until the next legislative elections will probably discourage efforts to consolidate debt, particularly that of inefficient public enterprises despite the fact that they occupy a large share of the economy.
As for exports, aluminium prices should remain high, limiting the drop in volumes expected in the wake of cooling European demand. As for tourism, the absence of Russian travellers (25% of entries in 2019) has not, however, hindered the post-pandemic recovery of the tourism sector which is driven by Western visitors and which should continue to expand with improved infrastructure.
High but stable external deficit despite inflation
Pristina is continuing its convergence efforts to integrate the European Union (EU), but faces delay in the diversification of its economy and persistent state inefficiency, which is paid for by a durably high level of external and public debt. In force since early 2022, the Europe Now programme includes in its tax component the replacement of flat taxes by a progressive personal and corporate income tax, as well as an improvement in effective collection. Despite its high deficit, the state does not risk default thanks to long-term financing and the exchange
rate protection offered by the euro. Public debt is 90% external, of which 56% corresponds to eurobonds and loans from foreign banks, and 17% to a loan from the Chinese Eximbank.
Structurally in deficit due to a staggering trade deficit, the current account should stabilise on a high plateau in 2023 under the combined adverse effects of an increase in tourism revenues on the one hand, and a relative drop in expatriate remittances (11% of GDP) and higher imports on the other. Montenegro continues to require massive FDI to finance this deficit, notably in tourism real estate, but the government elected on an anti-corruption platform has not concretely overcome the contradiction, with officials close to Prime Minister Abazović being accused of cigarette smuggling in October 2022.
Political tug-of-war between Serbia, EU and internal politics
After thirty years of rule by Milo Đukanović of the Democratic Socialist Party (DPS), the 2020 parliamentary elections marked a first alternation. Having capitalised on the rejection of corruption, however, the parties united in opposition were torn apart in power, with the Krivokapić government ending up overthrown in February 2022. It was replaced by a minority government led by Abazović, who was in turn disavowed in August in a DPS no-confidence motion in connection with Serbian church property and forced to dispatch current affairs. The presidential election, with a run-off on 2 April, was won by Jakov Milatović, co-founder of the Europe Now party, with 60% of the vote, against incumbent Milo Đukanović, following an alliance with candidates from other parties, Aleksa Bečić from Montenegro Democratique, and Andrija Mandić from New Serbian Democracy. Jakov Milatović pledged to fight corruption, improve the living standards of the people and strengthen ties with the European Union and Serbia. Before the first round in March 2023, Đukanović dissolved the parliament: parliamentary elections are scheduled for 11 June 2023. Having failed to turn its motion into a success in the October local elections, the Socialist Party (DPS) is no longer assured of reforming a majority, portending further political recomposition.
Long shelved in order to attract investment under Đukanović, the limitations of a 'West and East' positioning now constrain Podgorica's foreign policy. A member of NATO since 2017 (despite a mixed opinion) and implementing sanctions against Russia, the small nation was the target of widespread cyber attacks in August 2022 (attributed to Russia). With regard to Belgrade, Moscow's ally but also its domineering sister from which Podgorica gained independence in 2006, strategic ambiguity persists, not so much to appease all sides of opinion as because of the divisions in parliament. Following his election, however, Milatović expressed his desire to improve relations between the two countries. Parliamentarians are also divided over the proposed integrated Balkan market "Open Balkans". While there is a consensus towards the European Union, with successive governments having assimilated the community acquis at the most advanced level of the candidate countries, rapid integration is not likely to take place given the economic reforms to be accomplished and the recent local political instability.
Last updated: April 2023