Montenegro flag Montenegro: Economic outline

Economic Outline

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

As the smallest country of the Balkans, Montenegro has a relatively fragile economy that is transitioning to a market system and is based on financial investments, especially in the energy and tourism sectors (private investment accounts for around one-fifth of GDP). In 2021, the country’s economy was severely hit by the COVID-19 pandemic and the global crisis that followed, with the tourism sector (the main driver of growth in recent years) being particularly affected and the simultaneous weakening of both external and domestic demand (with a decrease of 80% in the first nine months of the year in terms of tourist arrivals). In 2021, GDP recovered from a disastrous 2020 with a growth rate of 7% as per the IMF. Montenegro’s economy is expected to further rebound thanks to investments supporting construction works and the revival of private consumption, with growth forecasted at 5.6% this year and 3.6% in 2023, though the conjuncture remains volatile and subject to the evolution of the pandemic.

Concerning public finances, Montenegro generally registers a budgetary deficit. In 2021, the country was expected to record a primary surplus; however, the fiscal measures taken to cushion the effects of the pandemic prompted the government budget deficit to climb to EUR 1.150 million, equal to around 21 % of GDP (data from the Ministry of Finance). The government has been forced to take austerity measures to counter the impact of COVID-19 on public finances. During summer 2021, it adopted a stimulus package worth EUR 1.2 billion (26.6% of GDP), causing the budget deficit to skyrocket. In addition to these measures, the country adopted the Law on Electronic Fiscalisation in June 2021 to enhance VAT collection and reduce the grey economy. Conversely, over the course of 2021, the debt-to-GDP ratio decreased from 107.2% to 93.4% in 2022 (IMF, latest data available). To consolidate public accounts, the Minister of Finance has indicated that a tax reform will be implemented between 2022 and 2023. Planned measures include the introduction of an income tax for legal entities, as well as a progressive income tax for individuals while increasing the gross monthly tax-free salary to EUR 700. Another matter of concern is the fact that most of the public debt is denominated in USD and the country has an external trade deficit of almost one-fourth of its GDP. Therefore, Montenegro is vulnerable to a decline in external demand, and its high financing needs expose the country to potential changes in risk aversion and disruptions in global financial markets. In 2021, high global energy prices and stronger internal demand drove inflation to 2% (from -0.2% one year earlier), with a modest decrease expected for 2022 and 2023 (1.5% and 1.4%, respectively). One of Montenegro’s main objectives is to join the European Union: the country acquired the official status of a candidate for membership in December 2010. To advance in the accession negotiations, it should demonstrate significant progress in several domains, including the rule of law, the fight against corruption and organised crime.

Although decreasing in recent years, the unemployment rate has been historically high and grew to 24.2% in 2021 (from around 20.5% in 2020 – data Employment Agency of Montenegro) and is expected to reach 25% in 2022. The country maintains a large informal sector, whereas the labour force participation rate remains low. Moreover, Montenegro is one of the poorest countries in Europe: according to the latest data available by the European Commission, almost 24% of the population is at risk of poverty or social exclusion.

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 5.544.79e5.496.046.55
GDP (Constant Prices, Annual % Change) 4.1-15.2e7.05.63.6
GDP per Capita (USD) 8,911e7,703e8,8389,71310,523
General Government Gross Debt (in % of GDP) 78.8107.2e93.482.478.8
Inflation Rate (%) 0.4-0.2e2.46.83.8
Current Account (billions USD) -0.79-1.24-1.15-1.02-0.87
Current Account (in % of GDP) -14.3-26.0-21.0-16.8-13.3

Source: IMF – World Economic Outlook Database, 2016

Note: (e) Estimated Data

 
Monetary Indicators 20162017201820192020
Euro (EUR) - Average Annual Exchange Rate For 1 ZAR 0.060.070.060.060.05

Source: World Bank, 2015

 

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Latest Update: July 2022