November 23 (SeeNews) - Montenegro should take steps to improve the standard of regional roads and to strengthen the functioning of the regional energy market, as cross-border transport and energy links are crucial for further growth and investment, the European Bank for Reconstruction and Development (EBRD) said.
The country also needs to take steps to increase competitiveness in the private sector with focus on key sectors with high potential, including the development of value chains in the agribusiness sector and the promotion of backward linkages in tourism, the EBRD said in its Transition Report 2017-2018, published on Wednesday.
Recent measures to rein in spending are welcome but Montenegro’s rising public debt and heavy capital spending needs warrant greater efforts to control non-productive spending and put public debt on a downward path, the bank said.
High imports related to the project for the construction of the Bar-Boljare motorway connecting the Adriatic Port of Bar to the border with Serbia, as well as to the construction of a commercial 72MW wind power plant, fuelled Montenegro's trade deficit and caused a significant drag on growth, almost offsetting the positive gross capital contribution, the EBRD noted. The tourism sector, on which the country's economy depends heavily, as receipts from foreign tourist arrivals account for about one-fifth of annual gross domestic product (GDP), has continued to perform well.
The near-term growth rates, projected at 3.7% in 2017 and 3.3% in 2018, are expected to be mainly investment-driven and supported by public investment in transport and energy infrastructure, where the construction of the motorway is the key project, and flagship foreign direct private investments, particularly in the tourism sector. However, the downside risks remain significant, associated both with potential cost overruns on the highway project as well as the country’s vulnerability to external shocks, the EBRD added.
Montenegro's economy expanded by 2.9% in 2016.