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September 2007

The Montenegrin Economy

Before independence, many observers posed the question of whether an independent Montenegro was economically viable. "Given that the economic strength of Montenegro as an independent state is uncertain, it would be better to remain a partner of an economically stronger Serbia", Dejan Corovic, deputy mayor of the coastal town of Herceg Novi, told Balkan insight. Andrija Mandic, leader of the Serbian List coalition, argued that Montenegro had to remain joined with Serbia to prosper.

In fact, in the short time since independence, the Montenegrin economy has been booming. Real GDP growth in 2006 was 6.5 percent. Inflation has been at or below 3 percent over the past three years. Public finances have been stable for many years now. General government debt was reduced from 88 percent of GDP in 2002 to 36 percent of GDP in 2006.

The economy has benefited from a reformed banking system and tax cuts. The government has set a flat corporate profit tax of 9 percent, and a flat personal income tax of 15 percent (to be lowered to 9 percent by 2010). This puts Montenegro at a level with top tax reformers such as the Baltics or Slovakia.

Despite these substantial tax cuts, the 2006 general government budget reached a surplus of 1.3 percent of GDP. Official unemployment has halved in four years to 14.7 percent. The presence of large numbers of foreign workers in tourism and construction suggests a growing demand for labour.

Year

GDP real growth (%)

Net FDI (EUR million)

2000

3.1

n/a

2001

-0.2

10.6

2002

1.7

86.9

2003

2.3

43.8

2004

3.7

51.8

2005

4.1

374.7

2006

6.5

466.7

Sources: World Bank, Central Bank of Montenegro

Foreign Direct Investment (link to our text below) reached record levels in 2005 and 2006, allowing Montenegro to sustain a substantial current account deficit (29 percent of GDP in 2006). While exports have increased in the first quarter of 2007 by 27 percent on a year-on-year basis, imports have continued to grow even faster.

A good analysis of economic trends is provided in the World Bank's latest Country Economic Memorandum from October 2005. Montenegro's Ministry of Finance Annual Report (2006) presents shorter articles on economic topics. The July 2007 Candidate and Pre-accession Countries' Economies Quarterly, published by the European Commission General Directorate for Economic and Financial Affairs (ECOFIN), gives a short summary of recent trends.

Further information:

Websites:

Further Documents:

Montenegro
Montenegro and the EU
Balkan Express Film
ESI Montenegro reports
Montenegro picture stories
Background information
Literary walk
Places
People
Vijesti
Vijesti
We thank the Montenegrin daily Vijesti for access to their photo archive.