Economy of Montenegro

The economy of Montenegro is currently in a process of transition, as it navigates the impacts of the Yugoslav Wars, the decline of industry following the dissolution of the Socialist Federal Republic of Yugoslavia, and economic sanctions imposed by the United Nations.

Economy of Montenegro

Central Bank of Montenegro
Currency	Euro (EUR, €)
Fiscal year	Calendar year
Trade organisations	CEFTA, WTO
Country group	Developing/Emerging[1] Upper-middle income economy[2]
Statistics
Population	621,873 (1 January 2020)[3]
GDP	$5.424 billion (nominal, 2019 est.)[4] $12.608 billion (PPP, 2019 est.)[5]
GDP rank	148th (nominal, 2019) 148th (PPP, 2019)
GDP growth	5.1% (2018) 3.6% (2019e) −5.6% (2020f) 4.8% (2021f)[6]
GDP per capita	$8,704 (nominal, 2019 est.)[4] $20,084 (PPP, 2019 est.)[4]
GDP per capita rank	73rd (nominal, 2019) 69th (PPP, 2018)
GDP by sector	Agriculture: 7.5% Industry: 15.9% Services: 76.6% (2016 est.)[7]
Inflation (CPI)	0.7% (2020 est.)[5]
Population below poverty line	8.6% (2013 est.)[7] 33.7% at risk of poverty or social exclusion (2017)[8] 18.1% on less than $5.50/day (2020f)[9]
Gini coefficient	36.7 medium (2017, Eurostat)[10]
Human Development Index	0.816 very high (2018)[11] (52nd) 0.746 high IHDI (2018)[12]
Labour force	257,387 (2019)[13] 59.8% employment rate (2018)[14]
Labour force by occupation	agriculture: 7.9% industry: 17.1% services: 75% (2017 est.)[7]
Unemployment	16.1% (2017 est.)[7] 30.7% youth unemployment (2018)[15]
Average gross salary	€769 / $862 monthly (November, 2018)
Average net salary	€512 / $574 monthly (November, 2018)
Main industries	steelmaking, aluminum, agricultural processing, consumer goods, tourism
Ease-of-doing-business rank	50th (very easy, 2020)[16]
External
Exports	$422.2 million (2017 est.)[7]
Export goods	N/A
Main export partners	Serbia 22.7%  Croatia 22.7%  Slovenia 7.8% (2012 est.)[17]
Imports	$2.618 billion (2017 est.)[7]
Import goods	Food,oil products,natural gas,clothes,industrial products.
Main import partners	Serbia 29.3%  Hungary 10.9%  Greece 8.7%  China 7.1% (2012 est.)[18]
FDI stock	$737.7 million (31 December 2017 est.)[7] Abroad: $39.77 million (31 December 2017 est.)[7]
Current account	−$780 million (2017 est.)[7]
Gross external debt	$2.516 billion (31 December 2017 est.)[7]
Public finances
Public debt	67.2% of GDP (2017 est.)[7][note 1]
Budget balance	−5.6% (of GDP) (2017 est.)[7]
Revenues	1.78 billion (2017 est.)[7]
Expenses	2.05 billion (2017 est.)[7]
Credit rating	Standard & Poor's:[19][20] BB+ (Domestic) BB (Foreign) BB+ (T&C Assessment) Outlook: Negative Moody's:[20] Ba3 Outlook: Negative
Foreign reserves	$1.077 billion (31 December 2017 est.)[7]
Main data source: CIA World Fact Book All values, unless otherwise stated, are in US dollars.

History

As a relatively small principality founded in 1852, Montenegro's economy was originally wholly based in agriculture, but it began developing an industrial economy at the turn of the 20th century. Growth was hampered by its small population, lack of raw materials, an underdeveloped transport network, and a comparatively low rate of domestic and international investment.

The first industrial enterprises built in Montenegro were wood mills, an oil refinery, a brewery, salt works, and electric power plants. Economic development was interrupted by several wars, including the First Balkan War (1912–13), World War I (1914–18), and World War II (1939–45). Throughout the first half of the 20th century, agriculture continued to dominate Montenegro's economic activity.

The Yugoslavian era

Montenegro's economy was developed significantly after World War II, as the country was integrated into the Socialist Federal Republic of Yugoslavia and experienced a period of rapid urbanization and industrialization. Its industrial sector included the generation of electricity, steel and aluminum production, coal mining, forestry and wood processing, textiles, and tobacco manufacturing, while international trade, shipping, and tourism became increasingly important by the late 1980s.

Post-Yugoslavia

Following the dissolution of Yugoslavia in the early 1990s, Montenegro's entire industrial production system effectively collapsed, leading to shortages of many goods and skyrocketing prices for them. Due to its political alliance with Serbia and favourable geographic location, with access to the Adriatic Sea and a shipping-link to Albania across Lake Skadar, Montenegro became a hub for smuggling activity during the 1990s. The smuggling of petrol and cigarettes, in particular, became a de facto legalised practice within the country.

Dissolution of Serbian alliance

In 1997, Milo Đukanović took control of Montenegro's ruling party, the Democratic Party of Socialists of Montenegro, and began severing political ties with Serbia. He blamed the policies of Serbian President Slobodan Milošević for the overall decline of the Montenegrin economy. Resurgent inflation led the Montenegrin government to "dollarize" the economy, adopting the German mark as its dominant currency. These economic policies also led to a revision of the relationship between the two countries from a federal republic to a much looser political union of Serbia and Montenegro, in which the Montenegrin government assumed responsibility for its own economic policies.

Montenegro subsequently opened up many of its economic sectors to privatization and introduced a value added tax to raise funds for public projects. It would later replace the German mark with the Euro as its legal tender, despite objections from Brussels. However, the implementation of these economic "reforms" did not significantly improve the living standard of Montenegrins during this period.

The Montenegrin government blamed its problems on Serbia, which suffered from a higher level of foreign debt and unemployment, as well as an investigation by the Hague war crime tribunal and controversy over the independence of its province of Kosovo. These factors hampered Montenegro's attractiveness to investors and delayed its progress toward full membership in the European Union and NATO.

On May 21, 2006, the people of Montenegro voted by referendum to declare independence from Serbia.

Post-independence

Following the independence referendum, Montenegro's economy has evolved to highlight its service sector, with a goal of becoming an elite tourist destination, and is navigating the process of joining the European Union. Attempts to attract foreign investors for large infrastructure projects are ongoing, as these projects are integral to its development as a tourist destination.

Montenegro experienced a real estate boom in 2006 and 2007, with wealthy Russians, Britons and others buying property on the Montenegrin coast. As of 2008, Montenegro received more foreign investment per capita than any other nation in Europe. However, the Great Recession did slow economic growth, as several infrastructure projects, such as the development of Velika Plaža, Ada Bojana, Buljarica, Jaz Beach, and the construction of the Bar-Boljare motorway and new power plants had to be postponed. The recession was also very difficult for the Podgorica Aluminium Plant, which was initially built in 1969 and was the biggest single contributor to the Montenegrin gross domestic product. The plant, first privatized in 2005, declared bankruptcy in 2013 and was sold to private investors in 2014.

In the first half of 2012, Montenegro exported goods, mostly metals, worth €182.3 million, which was 14.6% less than in the same period of the preceding year. Its major export partners include Croatia (€47.2 million), Serbia (€36.8 million), Bosnia and Herzegovina and Hungary (€12.7 million). Montenegro's imports in the first half of 2012, mostly food, oil, and electrical energy, were worth €864.9 million, which was 2.6% more than the same period in 2011. Its major import partners include Serbia (€249.2 million), Greece (€73 million), and Bosnia and Herzegovina (€59.8 million).[21]

The banking sector of Montenegro is highly concentrated with a significant share of foreign capital. Banks in Montenegro provide both retail and corporate banking products under one roof, and most offer non-resident accounts, usually to both natural persons and legal entities.[22]

Taxation

In addition to VAT, a tax rate of 9% is applied to monthly personal gross income below €751 per month, and a tax rate of 11% is applied for income above that. Montenegrin municipalities also apply an income tax surcharge equivalent to 15% of the federal tax rate.[23] Additional income reported in an annual tax return is also subject to a 9% tax rate.[24]

See also

• History of Montenegro
• Economy of Serbia and Montenegro
• Economy of Europe

Notes

1. data cover general government debt, and includes debt instruments issued (or owned) by government entities other than the treasury; the data include treasury debt held by foreign entities; the data include debt issued by subnational entities, as well as intragovernmental debt; intragovernmental debt consists of treasury borrowings from surpluses in the social funds, such as for retirement, medical care, and unemployment; debt instruments for the social funds are not sold at public auctions

References

1. "World Economic Outlook Database, April 2019". IMF.org. International Monetary Fund. Retrieved 29 September 2019.
2. "World Bank Country and Lending Groups". datahelpdesk.worldbank.org. World Bank. Retrieved 29 September 2019.
3. "Population on 1 January". ec.europa.eu/eurostat. Eurostat. Retrieved 13 July 2020.
4. "World Economic Outlook Database, October 2019". IMF.org. International Monetary Fund. Retrieved 16 October 2019.
5. "World Economic Outlook Database, April 2020". IMF.org. International Monetary Fund. Retrieved 16 April 2020.
6. "Global Economic Prospects, June 2020". openknowledge.worldbank.org. World Bank. p. 80. Retrieved 10 June 2020.
7. "The World Factbook". CIA.gov. Central Intelligence Agency. Retrieved 23 January 2019.
8. "People at risk of poverty or social exclusion". ec.europa.eu/eurostat. Eurostat. Retrieved 5 March 2020.
9. "Europe Central Asia Economic Update, Spring 2020 : Fighting COVID-19". openknowledge.worldbank.org. World Bank. p. 61, 62. Retrieved 9 April 2020.
10. "Gini coefficient of equivalised disposable income - EU-SILC survey". ec.europa.eu/eurostat. Eurostat. Retrieved 5 March 2020.
11. "Human Development Index (HDI)". hdr.undp.org. HDRO (Human Development Report Office) United Nations Development Programme. Retrieved 11 December 2019.
12. "Inequality-adjusted Human Development Index (IHDI)". hdr.undp.org. HDRO (Human Development Report Office) United Nations Development Programme. Retrieved 11 December 2019.
13. "Labor force, total - Montenegro". data.worldbank.org. World Bank. Retrieved 27 November 2019.
14. "Employment rate by sex, age group 20-64". ec.europa.eu/eurostat. Eurostat. Retrieved 25 May 2019.
15. "Youth unemployment rate by sex, age (15-24) and country of birth". appsso.eurostat.ec.europa.eu. Eurostat. Retrieved 26 December 2019.
16. "Ease of Doing Business in Montenegro". Doingbusiness.org. Retrieved 2017-01-23.
17. "Export Partners of Montenegro". CIA World Factbook. 2012. Retrieved 2013-06-21.
18. "Import Partners of Montenegro". CIA World Factbook. 2012. Retrieved 2013-07-24.
19. "Sovereigns rating list". Standard & Poor's. Retrieved 26 May 2011.
20. Rogers, Simon; Sedghi, Ami (15 April 2011). "How Fitch, Moody's and S&P rate each country's credit rating". The Guardian. Retrieved 31 May 2011.
21. B92, Crna Gora najviše uvozi iz Srbije, 26.07.2012
22. Offshore Banking in Montenegro
23. https://web.archive.org/web/20131203023417/http://www.mipa.co.me/page.php?id=7
24. https://home.kpmg.com/xx/en/home/insights/2015/11/montenegro-income-tax.html

External links

• Montenegro Economy and Financial News
• The Njegoskij Fund Public Project >> Country Profile on Montenegro
• CIA World Factbook - Montenegro
• A New Playground for the Rich, a slideshow by The New York Times.