For 2023, the World Bank forecasts 3.4% growth in Montenegro, with a further 3.1% expansion in 2024, the global lender said in its fall 2022 World Bank Europe and Central Asia Economic Update report published on Tuesday.
While the economy had a strong recovery in 2021, growing by 13%, it remains below its 2019 level and is now facing new challenges from global geopolitical and economic uncertainties. Additional liabilities are the country's public debt and political instability.
"The debt-financed highway construction, the pandemic, and a lack of commitment to fiscal targets have increased fiscal vulnerabilities and increased public debt, which peaked at 105% of GDP in 2020. Despite a significant decline to 84% of GDP in 2021, public debt remains high", the World Bank said.
In January 2022, Montenegro started implementing a tax reform programme that aims to reduce inequalities and increase growth in the medium term. The reform removes healthcare contributions, introduces personal income tax allowance, progressive personal and corporate income taxation, and increases the net monthly minimum wage from 250 euro to 450 euro ($248 to $446). Further, an adopted increase of the minimum monthly pension from 150 euro to over 250 euro (effective September 2022), without compensating reform measures, is further weakening pension system sustainability and equity, according to the report.
According to the World Bank, all this leads to high public debt in the long term, estimated at 73.4% of GDP for 2022, and around 72% for both 2023 and 2024.
In August, there was a vote of no confidence in the government - the second government to collapse in 2022, the World Bank noted. The complexity and fragility of the political landscape intensify already high uncertainties, slow the reform process, and divert focus from imminent economic challenges, the report reads.
Inflation in Montenegro is expected to average 12.3% in 2022, before slowing down to 5.9% in 2023 and 2.6% in 2024.
The regional GDP growth of the Western Balkans region is forecast at 3.4% in 2022, down from 7.7% in 2021.
"Growth is projected to remain at an average of 2.9% over the forecast horizon, as EU accession reforms and investment mitigate the negative impacts imposed by higher energy and food prices, disruptions to trade and investment flows, and spillovers from the slowdown in euro area activity," the World Bank noted referring to the Western Balkans.
