Subchapters:
- Basic data
- Public finances and the state budget
- Banking system
- Tax system
Basic data
According to cheeroutdoor.com, the country’s economic situation is characterized by an increase in foreign direct investment, by 18.1% for 2021 compared to 2020. Total income from tourism in the first 3 quarters of 2021 exceeded 700 million euros. A significant role was also played by record state revenues, which totaled €billion. In the spring of 2021, Montenegro turned to the European Union for help in settling the nearly billion (USD) debt that Montenegro owes to China due to the construction of the highway. In connection with the Covid-19 pandemic, Montenegrin experts and government officials pointed out the need for greater diversification of the economy.
Public finance and state budget
In 2022, the good collection of revenues from 2021 continued and almost all expenditure categories were realized at a lower volume than planned. According to the above, the budget deficit for January and February of this year is lower by 55.1% (6million EUR). The reduction of the country’s indebtedness (public debt as of 31.12.2021 reached 84.75% of GDP) had a positive impact on both the functioning of the country and the overall budget, whose deficit in 2022 should amount to €268 million, whereby the balance of the state budget amounted to -% of GDP.
Banking system
Despite the numerous challenges brought about by the coronavirus pandemic, the banking sector of Montenegro maintained liquidity and solvency in 2021. The banking sector is characterized by increased credit activity, triggered by an improvement in economic activity in 2021. Trends in the capital market and the insurance market also developed steadily thanks to the gradual economic recovery of the economy in the previous year. The interest rate was 5.6% at the end of 2021.
Main commercial banks: Crnogorska komercijalna banka/ CKB – belongs to OTP group, ERSTE Bank, Hipotekarna Banka, NLB Banka, Prva banka Crne Gore
Tax system
Profit tax is 9%. Profit tax payers also pay a so-called withholding tax of 9% on dividends, shares in the profits of a legal entity, royalties, capital gains and real estate rental income paid to a non-resident legal entity. Tax on interest income is 5%. With the introduction of the program Europe Sad! there was a change in the structure of taxation of the income of natural persons, which is now 0% for amounts up to €700 gross, 9% for amounts from €700-1000 gross and 15% for amounts higher than €1000. The standard VAT is 21% and the reduced rate is 7%. Exempted are services in the public interest, PHM for ships (army, rescue service, international transport), as well as the export of goods, the supply of medicines and medical devices, which are financed from the state fund for health insurance. Basic food products, medicines, medical devices, books and school supplies, accommodation, etc. Consumption taxes apply to alcohol, tobacco, mineral oils and PHM, carbonated drinks with sugar content, etc. Property transfer tax: 3% of the market value of the property. There is a tax of 19% on the transfer of new real estate.
Basic data
Montenegro’s economy is heavily dependent on imports and on tourism, which accounted for 25% of GDP in 2019, after a significant decline caused by the fall of the tourist season in 2020, the country managed to recover tourism in 2021, when tourist numbers were comparable to record ones from 2019, however, more tourists from the region came, who preferred cheaper service options. Revenues from the season hovered around 60-70% of those before the pandemic. Even so, the country recorded economic growth in 2021, which, although it did not fully replace the slump from 2020, led to cautious optimism for the following years, GDP growth of 4.7% is forecast for this year, which will be supported by household spending thanks to the Europe Now project, which led to a jump in the minimum wage from EUR 250 to EUR 450, the average wage is now around EUR 550. On the contrary, growth will be hindered by the lack of tourists from the region affected by Russian aggression in Ukraine and the sanctions against RU. The Europe program now also raises questions about the fiscal stability of the country and the budget, which was built as a deficit from the beginning. The new government is planning some budget adjustments in 2022.
In addition to tourism, the country’s economy relies on agriculture (growing citrus, vines and vegetables) and partly on industry (steel, wood and engineering). Government and international experts talk about the need for greater diversification of the economy and mention the area of smart technologies and the building of so-called business incubators as preferred fields.
The country’s indebtedness rose to a record 103.28% of GDP at the end of 2021 (data source MF ME). unemployment fell to 23% in March 2022, annual inflation in April 2022 is reported at 11.2%, the highest since June 2008.
Structure of the economy – the service/tourism sector prevails, followed by agriculture, steel, wood and engineering. The country exports raw aluminum and bauxite, electricity, dried vegetables, medicines. The main trading partners to which it exports are neighboring Serbia, as well as Slovenia, Pakistan, Germany and China. It imports petroleum products, electricity, automobiles, medicine, food. The main importers are Serbia, China, Croatia, Bosnia and Herzegovina and Italy.
Table from MOP + additionally balance of payments, indebtedness/GDP.
| Pointer | 2019 | 2020 | 2021 | 2022 | 2023 |
| GDP growth (%) | 6.2 | -15.5 | 12.4 | 6.4 | 3.4 |
| GDP/population (USD/PPP) | 7,741 | 6,741 | 7,920 | 8,530 | ON |
| Inflation (%) | 0.4 | -0.2 | 2.4 | 9.7 | 2.1 |
| Unemployment (%) | 16.2 | 20.50 | 24.73 | 23.02 | 16.7 |
| Export of goods (billion USD) | 0.5 | 0.3 | 0.4 | ON | ON |
| Import of goods (billion USD) | 2.9 | 2.1 | 2.5 | ON | 3.4 |
| Trade Balance (Billion USD) | -2.3 | -1.7 | -2.06 | ON | -2.6 |
| Industrial production (% change) | -6.2 | -0.9 | ON | ON | 3.2 |
| Population (millions) | 0.6 | 0.6 | 0.6 | 0.6 | 0.6 |
| Competitiveness | 73/141 | ON | ON | ON | ON |
| OECD export risk | 07.VII | 07.VII | 07.VII | ON | ON |
Source: EIU, OECD, IMD, Monstat
Public finance and state budget
| Public finance | 2021 |
| State budget balance (% of GDP) | -2.1 |
| Public debt (% of GDP) | 84.75 |
| Current account balance (billion USD) | -0.454 |
| Taxes | 2022 |
| AFTER | 9% |
| F.O | 9% / 11% |
| VAT | 7% / 21% |
At the last meeting of the Parliament of Montenegro in 2021 on 29.12. the law on the state budget for the year 2022 and the accompanying proposals for changes to the laws were approved, in which, as part of the plan of the Minister of Finance and Social Affairs Spajič “Europe now”, there was also a significant jump in the minimum wage from EUR 250 to EUR 450 per month as well as adjustments of the tax system – an increase in the deductible amount per taxpayer to EUR 700 per month, allowances for children under 18 were re-introduced and an increase in the minimum pension to EUR 200 was approved. However, the payment of allowances for children aged 7 to 18 is postponed until October 2022 and the increase of the minimum pension until September 2022. The payment of special benefits for mothers with three or more children has been postponed until April 1, 2022. Health insurance levies for employers and employees were abolished. The re-increase of VAT for catering establishments was not passed, which was originally reduced as a form of support in Covid-19. The budget is in deficit, EUR 275 million will be missing. Parliament did not approve the introduction of a new consumption tax or an increase in an already existing tax on harmful products, did not approve an increase in VAT on food and drinks, and also reduced government borrowing to finance the deficit and create a fiscal reserve in 2023 from the originally planned €500 million to €70 million.
In practice, the budget will be even more in deficit, because some expected items on the revenue side are unrealistic, such as income from fuel labeling or illegally seized property. Fuel markers are not yet required in the country, the law on confiscation of illegally obtained property has not yet been adopted. The Cash Withdrawal Tax Act was also withdrawn from the proceedings and the Gambling Act was not even introduced.
The country’s debt rose to a record 103.28% of GDP at the end of 2021. The new government is preparing a budget adjustment law for parliament in June 2022, which should reduce the budget deficit.
Banking system
The banking sector and the Central Bank managed the consequences of the crisis caused by the pandemic with measures aimed mainly at natural persons and also at micro, small and medium-sized enterprises. The maintained strong confidence in the banking system was manifested by reaching historical highs of deposits and liquid assets of banks. The only indicator of deterioration is a slight increase in defaulted loans, the current account deficit for the previous year amounted to 9.2%. In 2021, a high net foreign direct investment inflow of EUR 512 million, or 11.3% of estimated GDP, was recorded. The Financial Stability Report for 2021 stated that systemic risks were moderate at the end of the previous year and at a slightly lower level compared to 2020, mainly due to the economic recovery. However, other risks persist, particularly fiscal,
Commercial banks operating in the country:
Crnogorska Komercijalna Banka and Podgorička banka and NLB Bank successfully completed their merger in November 2021, today it is the resulting integrated bank with the largest loan and deposit portfolio and the largest number of clients. It offers 35 branches and 115 ATMs.
Erste Bank – profiles itself with electronic banking. In the household sector, the number of clients in 2021 reached approximately 118,000. Erste Bank’s electronic banking service was used by 10.7 thousand customers in 2021, which is an increase of 16.4% compared to 2020. The number of users of the mBanking service for natural persons at the end of 2021 was 8 thousand, while the number of accounts increased by 25.6%.
Hipotekarna banka – is the fastest growing Montenegrin bank, in 2021 it became a signatory of the Principles of Responsible Banking.
Prva Banka Crne Gore – historically the oldest bank in the country, founded in 1901, with a network of 14 branches and 17 counters in 21 cities of Montenegro. It also supports socially responsible projects for the development of the local community and Montenegro.
Tax system
Dan’s system seems straightforward. Changes in the taxation of the income of natural persons changed as part of the program Europe sad! Perhaps they will be subject to further changes as part of the new Government seeks to change this program.
Profit tax is 9%. Profit tax payers also pay a so-called withholding tax of 9% on dividends, shares in the profits of a legal entity, royalties, capital gains and real estate rental income paid to a non-resident legal entity. Tax on interest income is 5%. With the introduction of the Europe Kits program, the structure of personal income taxation has changed, which now amounts to 0% for amounts up to €700 gross, 9% for amounts from €700-1000 gross and 15% for amounts greater than €1000. The standard VAT is 21% and the reduced rate is 7%. Exempted are services in the public interest, PHM for ships (army, rescue service, international transport), as well as the export of goods, the supply of medicines and medical devices, which are financed from the state health insurance fund. Basic food products, medicines, medical devices, books and school supplies, accommodation, etc. Consumption taxes apply to alcohol, tobacco, mineral oils and PHM, carbonated drinks with sugar content, etc. Property transfer tax: 3% of the market value of the property. There is a tax of 19% on the transfer of new real estate.
