## 1mneea2025002-source-pdf ## Source details **Canonical URL:** [1mneea2025002-source-pdf](https://www.imf.org/-/media/files/publications/cr/2025/english/1mneea2025002-source-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1mneea2025002-source-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1mneea2025002-source-pdf.pdf.json) --- ### Recent performance and drivers - Real GDP growth averaged about 9 percent annually between 2021 and 2023. - Growth moderated to 3.2 percent in 2024 and the first half of 2025. - Strong post-pandemic performance driven by the global rebound in tourism and significant inflows of affluent migrants from Russia and Ukraine. - Registered employment increased by 22 percent (end-2021 to end-2024); net wage increased by 88 percent (Text Table 1 outcomes). ### Inflation, wages, and labor market - Headline inflation: fell from a peak of 13 percent in 2022 to just 1 percent by September 2024, then rose to 4.9 percent by September 2025. - Core inflation (excluding food and energy): 3.2 percent (as reported). - Average headline inflation forecast: around 4 percent in 2025, before gradually converging toward 2 percent over the medium term. - Average net wage growth: 1.7 (2020), 1.5 (2021), 33.8 (2022), 11.2 (2023), 10.6 (2024) — further years listed as "..." in the source. - Europe Now (EN1, EN2) program features and outcomes: - EN1 effective January 2022: minimum wage increases €250→€450; elimination of flat-rate healthcare contributions (employee 8.5 percent, employer 2.3 percent); introduction of progressive PIT and CIT. - EN2 effective October 2024: minimum wage increases €450→€600 (low-skilled) and €800 (high-skilled); pension and disability insurance contributions reduced from 15 to 10 percent (employees) and from 5.5 to 0 percent (employers); progressive PIT and CIT continued. - Empirical estimates of envelope wage reductions: - EN1: €11–€38 per month by various estimators; regression discontinuity €25. - EN2: €23–€73 per month by various estimators; regression discontinuity €30. - For minimum wage earners, EN1 gross wage increase Dec 2021→Jan 2022: €159; EN2 gross wage increase Sep 2024→Oct 2024: €138. - Conclusion: EN programs reduced envelope wages and contributed to formal employment; envelope wage reductions were modest on average but larger for some groups. Risks remain that further minimum wage increases could reintroduce informality. ### Fiscal outlook, deficits, and debt dynamics - General government deficit: projected to widen from 2.9 percent of GDP in 2024 to 3.6 percent in 2025. - Without new measures, the deficit is expected to exceed 4 percent of GDP by 2030 in baseline forecasts. - Primary balance (percent of GDP): -8.2 (2020), 1.0 (2021), -2.5 (2022), 2.2 (2023), -1.5 (2024), -1.5 (2025), -1.4 (2026), -1.5 (2027), -1.3 (2028), -1.6 (2029), -1.8 (2030). - Overall fiscal balance (percent of GDP): -10.9 (2020), -1.4 (2021), -4.0 (2022), 0.4 (2023), -3.4 (2024), -3.6 (2025), -3.7 (2026), -3.8 (2027), -3.9 (2028), -4.1 (2029), -4.3 (2030). - General government gross debt (percent of GDP): 108.4 (2020), 86.2 (2021), 70.3 (2022), 59.6 (2023), 60.8 (2024), 60.8 (2025), 61.5 (2026), 61.7 (2027), 62.3 (2028), 63.3 (2029), 64.9 (2030). - General government gross debt (authorities' definition): 106.5 (2020), 84.6 (2021), 69.0 (2022), 58.5 (2023), 59.7 (2024), 59.9 (2025), 60.6 (2026), 60.9 (2027), 61.5 (2028), 62.5 (2029), 64.2 (2030). - General government debt, including loan guarantees: 113.7 (2020), 90.2 (2021), 73.4 (2022), 62.1 (2023), 63.1 (2024), 63.0 (2025), 63.6 (2026), 63.7 (2027), 64.2 (2028), 65.0 (2029), 66.6 (2030). - General government net debt, including guarantees: 92.0 (2020), 79.6 (2021), 70.6 (2022), 59.6 (2023), 56.3 (2024), 54.8 (2025), 55.3 (2026), 56.4 (2027), 57.5 (2028), 58.7 (2029), 60.2 (2030). - Consolidated general government fiscal indicators (percent of GDP, selected): - Revenue: 43.8 43.4 38.1 40.7 40.7 40.2 40.6 40.6 40.7 40.7 40.7 (2020–30 series) - Expense: 47.2 39.3 36.2 35.6 38.5 38.2 38.3 38.5 38.6 38.7 38.7 - Net lending/borrowing: -10.8 -1.3 -4.0 0.4 -3.4 -3.6 -3.7 -3.8 -3.9 -4.1 -4.3 - Strategic fiscal recommendations to restore sustainability: - Aim for a balanced primary budget given the positive output gap. - Strengthen the Fiscal Responsibility Law and operationalize an independent Fiscal Council. - Constrain public wage bill growth to the rate of inflation (estimated savings 0.9 percent of GDP by 2028 if implemented). - Complete airport concession (potential yield about 1.1 percent of GDP). - Reduce unproductive tax expenditures (estimated 0.4 percent of GDP in 2026–28). - Revenue administration reforms and fuel marking could yield approximately 0.9 percent and 0.3 percent of GDP respectively. - Aggregate illustrative impacts (Text Table 5): - Menu of potential fiscal adjustment measures (percent of GDP): - Confining Wage Bill to Inflation: 0.3 0.6 0.9 (2026, 2027, 2028) - Saving Airport Concession Revenue: 1.1 0.0 0.0 - Reducing Tax Expenditures: 0.4 0.4 0.4 - Total Annual Impact (selected years): 1.8 1.0 1.3 - Primary Balance (baseline) -1.4 -1.5 -1.3 - Primary Balance (after measures) 0.4 -0.5 0.0 - Public Debt (baseline) 61.5 61.7 62.3 - Public Debt (after measures) 59.7 58.9 58.2 - Public Debt (after additional measures) 59.1 57.4 55.5 ### External sector, tourism, and reserves - Current account balance (percent of GDP): -26.3 (2020), -9.3 (2021), -12.9 (2022), -11.2 (2023), -17.1 (2024), -18.1 (2025), -17.0 (2026), -16.5 (2027), -16.0 (2028), -15.5 (2029), -15.0 (2030). - Current account expected to weaken to some 18 percent of GDP in 2025 but improve partially as temporary factors subside; unlikely to return to 2021–2023 levels without diversification and rebalancing away from consumption. - Tourism indicators (percent change): Foreign Arrivals: -86.0 (2020), 342.9 (2021), 31.1 (2022), 20.2 (2023), 0.0 (2024); Foreign Nights: -84.0 (2020), 323.3 (2021), 25.9 (2022), 33.0 (2023), -5.0 (2024). - Foreign direct investment, net (percent of GDP): 11.4 (2020), 11.8 (2021), 13.2 (2022), 6.1 (2023), 6.4 (2024), 6.9 (2025), 7.4 (2026–2030). - Gross international reserves (millions of USD): 2,116 (2020), 1,977 (2021), 2,026 (2022), 1,553 (2023), 1,748 (2024), 2,132 (2025), 2,184 (2026), 2,125 (2027), 2,084 (2028), 2,082 (2029), 2,129 (2030). - External debt (end of period, stock): 223.5 (2020), 193.5 (2021), 158.1 (2022), 128.2 (2023), 126.6 (2024), 142.0 (2025), 149.9 (2026), 156.8 (2027), 163.2 (2028), 168.9 (2029), 174.6 (2030). - Reserve adequacy (Annex VII, 2024): target 17.4 / modified target 20.1; gross international reserves 21.8 (percent of GDP); percent of metric: 125% / modified: 108%. ### Financial sector and vulnerabilities - Banking system described as in good health with strong capitalization, ample liquidity, and low NPL ratios. - Bank credit to private sector (percent change, end of period): 3.4 (2020), 3.2 (2021), 8.2 (2022), 6.9 (2023), 15.5 (2024), 19.3 (2025), 8.8 (2026), 6.6 (2027), 8.5 (2028), 8.0 (2029), 7.3 (2030). - Private sector deposits (percent change): -2.0 (2020), 15.7 (2021), 23.0 (2022), 8.9 (2023), 8.0 (2024), 10.3 (2025), 5.9 (2026), 5.3 (2027), 5.1 (2028), 5.6 (2029), 4.7 (2030). - Q2 2025 NPL ratio fell to 2.9 percent (from average 6.1 percent in 2022). - Banking sector metrics (selected): capital adequacy ratio ~19.5 percent (Q2 2025 average); return on equity 15.2 percent. - Macroprudential and supervisory measures: - CBCG raised CCyB to 0.5 percent in April 2025; plan to increase to 1 percent in January 2026. - CBCG collecting borrower-based measures (DSTI, LTV); data quality improvements advised. - Directors urged close monitoring for early signs of stress, maintain robust supervision including strong AML enforcement. - Development Bank (RBCG) governance risks and legal gaps: law (October 2024) permits acceptance of deposits and payment services without clear deposit protection coverage or PSD2 alignment; strategy/business plan not yet produced; parliament considering amendments. ### Outlook, risks, and structural priorities - Real GDP growth projections (percent change): -15.0 (2020), 13.0 (2021), 7.7 (2022), 6.5 (2023), 3.2 (2024), 3.2 (2025), 3.2 (2026), 3.0 (2027), 3.0 (2028), 3.0 (2029), 3.0 (2030). - Medium-term baseline growth forecast: around the estimated potential growth rate of around 3 percent. - Key risks identified: - Primary downside risk: weak tourism growth (global slowdown or idiosyncratic factors). - Vulnerabilities: high gross financing needs (GFN) averaging about 13 percent of GDP throughout the forecast period and dependence on FDI to finance the current account deficit. - Other risks: Europe Now 2.0 fiscal impact (Likelihood: High; Impact: High), fiscal vulnerabilities and higher long-term interest rates (Likelihood: High; Impact: High), commodity price volatility (Likelihood: High; Impact: Medium), geopolitical tensions (Likelihood: High; Impact: High), climate change (Likelihood: Medium; Impact: Medium), cyberthreats (Likelihood: High; Impact: Medium). - Alternative scenario table (exact reproduced staff figures for 2026–28): - Baseline (2026, 2027, 2028): Real GDP growth 3.2 3.0 3.0; Inflation (avg) 2.4 2.2 2.0; Public debt 61.5 61.7 62.3; Current account (percent of GDP) (17.0) (16.5) (16.0). - Downside (2026, 2027, 2028): Real GDP growth 2.8 2.8 3.0; Inflation (avg) 2.2 2.0 2.0; Public debt 62.0 62.5 63.0; Current account (percent of GDP) (16.7) (16.2) (16.0). - Upside (2026, 2027, 2028): Real GDP growth 3.7 3.5 4.0; Inflation (avg) 2.7 2.7 3.0; Public debt 61.0 60.6 60.0; Current account (percent of GDP) (17.2) (17.4) (17.6). - Executive Board assessment: resilience and strong fundamentals noted; recovery matured and country exposed to global shocks and external financing dependence. ### EU accession: potential gains, challenges, and policy focus - Cross-country evidence: GDP per capita gains estimated about 17 percent for 2004 accession countries (2004–2019 difference-in-differences). Heterogeneity: 75th vs 25th percentile in diversification showed 24 percent more gains in GDP per capita over 10 years; 75th percentile in government effectiveness and innovation reaped 10 percent and 16 percent more in GDP per capita gains respectively than 25th percentile. - Montenegro-specific risks with accession: - Heavy dependence on tourism and consumption-driven growth; risks of brain and muscle drain; increased imports from EU could worsen trade deficit; potential visa changes could affect tourism source composition. - Policy recommendations to capture accession gains: - Develop strategy to improve productivity, bolster labor market, attract FDI into sectors beyond tourism/construction/real estate. - Prioritize diversification into agriculture, clean energy, digital services, niche tourism. - Align climate policy objectives with the EU. ### Climate policy, adaptation, and macro-fiscal risks (DIGNAD results and calibration) - Montenegro vulnerabilities: forests cover 60 percent of territory; tourism approx 30 percent of GDP; total installed electricity generation capacity 1,067 MW (2023). - EU CBAM implications: from January 1, 2026, EU importers of Montenegrin electricity incur CBAM-related costs equal to the difference between the EU ETS price (currently around EUR 80/tCO2e) and the fixed Montenegrin carbon price of EUR 24/tCO2e. Coal accounts for around 30–40 percent of electricity production. Recommended: reform national ETS to align with EU ETS, expand renewable generation, protect vulnerable households. - DIGNAD model scenarios (exact calibrated parameters preserved): - Return to standard infrastructure 35.0 - Return to adaptation infrastructure 45.0 - Public investment to GDP ratio 5.7 - Grants to GDP ratio 1.0 - Consumption tax (VAT) rate 21.0 - Labour income tax rate 9.0 - Public domestic debt to GDP ratio 4.0 - Public concessional debt to GDP ratio 10.0 - Public external commercial debt to GDP ratio 46.0 - Remittances to GDP ratio 10.7 - Imports to GDP ratio 68.0 - Real interest rate on public domestic debt 1.2 - Real interest rate on public external commercial debt 2.0 - Depreciation rate of standard public infrastructure 7.5 - Depreciation rate of resilient public infrastructure 3.0 - Public investment efficiency 41.0 - Key simulated outcomes: - A calibrated climate shock (one-month summer tourism disruption) yields immediate output losses of 7–8 percent of GDP and long-term scarring if unaddressed. - Investing 0.9 percentage points of GDP annually (2025–2029) in climate-resilient infrastructure substantially reduces short-term GDP losses and eliminates long-term scarring versus standard infrastructure. - Financing choices: - No-Borrowing: requires sizeable tax increases and expenditure cuts to close gaps (e.g., consumption tax +1.5 percent of GDP and income tax +0.5 percent of GDP in 2031 in standard-investment case), leading to additional GDP decline (an extra 4 percentage points). - With-Borrowing: borrowing raises public debt by about 4–6 percentage points of GDP (higher for standard infrastructure) but limits immediate fiscal tightening; climate-resilient investment reduces long-term scarring. - World Bank CCDR and Q-CRAFT estimates referenced: adaptation annual needs 0.6–0.9 percent of GDP; extreme scenarios could push public debt toward 180 percent of GDP by 2100; adaptation costs potentially up to 2.7 percent of GDP annually for energy transition. ### Data, statistics, and institutional recommendations - MONSTAT revised national accounts (2006–25) adopting ESA 2010 with base year 2020. - CBCG estimates tourism revenues for BOP using multiple agencies; key challenge: distinguishing tourists from migrants in primary data. - Recommendation: improve data granularity and methodologies, prioritizing methodological enhancements and timely resumption of detailed balance-of-payments data publication. - Annex VIII: list of common indicators required for surveillance and recent TA/missions (selected): FAD C-PIMA May 2025; FAD tax policy microsimulation May 2025; MCM stress testing May 2025; STA external sector stats July–Aug 2024. ### Sovereign stress assessment and institutional reforms - Overall risk of sovereign stress: assessed as moderate; DSA highlights need to address long-term spending pressures (Annex VII). - Main drivers of rising expenditure pressures: healthcare costs and pension outlays. - Key structural fiscal reforms recommended: - Restore plans linking statutory retirement age to life expectancy. - Enhance means-testing for social benefits. - Implement health sector cost-containment. - Comprehensive civil service reforms. - Enhance PIT progressivity and align excise taxes with EU directives. - NATO defense spending implications: - As a NATO member, target to raise national defense spending from 2 percent of GDP to 5 percent of GDP by 2035, allocating 3.5 percent of GDP for core military capabilities. - Ministry of Defense requests increase in military expenditures by 0.2 percent of GDP annually until 2028 (incorporated into baseline). - Fiscal institutions: - Fiscal Responsibility Law: numeric rules include 60 percent debt ceiling and 3 percent deficit limit but enforcement has been weak; law prescribes submission to parliament within 60 days of deviation, which has not been enforced. - Operationalizing independent Fiscal Council is an immediate priority; authorities hope it will become operational in early-2026 (subject to parliamentary action). - Recommended legal amendments: clearly define exceptional circumstances and timelines for corrective action; strengthen public reporting and accountability. ### Key headline statistics (selected, preserved exactly) - Real GDP growth: 9 percent average (2021–23); 3.2 percent (2024); 3.2 percent (2025 projection). - Headline inflation: 13 percent (peak 2022), 1 percent (September 2024), 4.9 percent (September 2025). - Core inflation: 3.2 percent (as reported). - General government gross debt: 59.6 percent of GDP (2023), 60.8 percent of GDP (2024 and 2025). - Current account balance: -17.1 percent of GDP (2024), -18.1 percent of GDP (2025). - Nominal GDP (millions of €): 7,645 (2024), 8,280 (2025), 8,771 (2026). - GDP per capita (USD): 12,262 (2023), 13,259 (2024). - Unemployment rate: 17.9 (2020), 16.6 (2021), 14.7 (2022), 13.1 (2023), 11.4 (2024). *Source: MONTENEGRO STAFF REPORT FOR THE 2025 ARTICLE IV CONSULTATION (excerpts and tables as provided in the source content).* ### 2023. This robust performance was largely supported by favorable external factors, including ### 1mneea2025002-source-pdf - 2023. This robust performance was largely supported by favorable external factors, including ### Recent performance and drivers - Montenegro experienced a robust post-pandemic recovery, with growth averaging about 9 percent annually between 2021 and 2023. - Growth moderated to 3.2 percent in 2024 and the first half of 2025, driven partially by softening tourism and continued consumer spending. - The strong post-pandemic performance was largely driven by the global rebound in tourism and significant inflows of affluent migrants from Russia and Ukraine. - From end-2021 to end-2024, registered employment increased by 22 percent; net wage increased by 88 percent (Text Table 1 outcomes). ### Inflation, wages, and labor market - Headline inflation: fell from a peak of 13 percent in 2022 to just 1 percent by September 2024, then rose again to 4.9 percent by September 2025. - Core inflation (excluding food and energy) reached 3.2 percent (as reported in the source). - Average headline inflation is forecast at around 4 percent in 2025, before gradually converging toward 2 percent over the medium term. - Average net wage growth: 1.7 (2020), 1.5 (2021), 33.8 (2022), 11.2 (2023), 10.6 (2024) — further years listed as "..." in the source. - Europe Now and Europe Now 2 programs: sharp minimum wage hikes, healthcare contribution removal, introduction of progressive tax, further minimum wage increase, pension contribution reduction. Stated goals: reducing informality (envelope wages), boosting employment, and living standards. Overall assessment notes envelope wages reduced, employment boosted moderately, and enhanced financial inclusion; weaknesses in fiscal revenues are yet to be fully offset. ### Fiscal outlook, deficits, and debt dynamics - General government deficit: projected to widen from 2.9 percent of GDP in 2024 to 3.6 percent in 2025. - Without new measures, the deficit is expected to exceed 4 percent of GDP by 2030 in baseline forecasts. - Primary balance: -8.2 (2020), 1.0 (2021), -2.5 (2022), 2.2 (2023), -1.5 (2024), -1.5 (2025), -1.4 (2026), -1.5 (2027), -1.3 (2028), -1.6 (2029), -1.8 (2030). - Overall fiscal balance (percent of GDP): -10.9 (2020), -1.4 (2021), -4.0 (2022), 0.4 (2023), -3.4 (2024), -3.6 (2025), -3.7 (2026), -3.8 (2027), -3.9 (2028), -4.1 (2029), -4.3 (2030). - General government gross debt: 108.4 (2020), 86.2 (2021), 70.3 (2022), 59.6 (2023), 60.8 (2024), 60.8 (2025), 61.5 (2026), 61.7 (2027), 62.3 (2028), 63.3 (2029), 64.9 (2030). - General government gross debt (authorities' definition): 106.5 (2020), 84.6 (2021), 69.0 (2022), 58.5 (2023), 59.7 (2024), 59.9 (2025), 60.6 (2026), 60.9 (2027), 61.5 (2028), 62.5 (2029), 64.2 (2030). - General government debt, including loan guarantees: 113.7 (2020), 90.2 (2021), 73.4 (2022), 62.1 (2023), 63.1 (2024), 63.0 (2025), 63.6 (2026), 63.7 (2027), 64.2 (2028), 65.0 (2029), 66.6 (2030). - General government net debt, including guarantees: 92.0 (2020), 79.6 (2021), 70.6 (2022), 59.6 (2023), 56.3 (2024), 54.8 (2025), 55.3 (2026), 56.4 (2027), 57.5 (2028), 58.7 (2029), 60.2 (2030). ### External sector, tourism, and reserves - Current account balance (percent of GDP): -26.3 (2020), -9.3 (2021), -12.9 (2022), -11.2 (2023), -17.1 (2024), -18.1 (2025), -17.0 (2026), -16.5 (2027), -16.0 (2028), -15.5 (2029), -15.0 (2030). - The current account is expected to weaken to some 18 percent of GDP in 2025 but improve partially as temporary factors subside; it is unlikely to return to 2021–2023 levels without diversification and rebalancing away from consumption. - Tourism indicators: Foreign Arrivals percent change: -86.0 (2020), 342.9 (2021), 31.1 (2022), 20.2 (2023), 0.0 (2024); Foreign Nights percent change: -84.0 (2020), 323.3 (2021), 25.9 (2022), 33.0 (2023), -5.0 (2024). - Foreign direct investment, net (percent of GDP): 11.4 (2020), 11.8 (2021), 13.2 (2022), 6.1 (2023), 6.4 (2024), 6.9 (2025), 7.4 (2026–2030). - Gross international reserves (millions of USD): 2,116 (2020), 1,977 (2021), 2,026 (2022), 1,553 (2023), 1,748 (2024), 2,132 (2025), 2,184 (2026), 2,125 (2027), 2,084 (2028), 2,082 (2029), 2,129 (2030). - External debt (end of period, stock): 223.5 (2020), 193.5 (2021), 158.1 (2022), 128.2 (2023), 126.6 (2024), 142.0 (2025), 149.9 (2026), 156.8 (2027), 163.2 (2028), 168.9 (2029), 174.6 (2030). ### Financial sector and vulnerabilities - Banking system: described as in good health with strong capitalization, ample liquidity, and low non-performing loan (NPL) ratios. - Bank credit to private sector (percent change, end of period): 3.4 (2020), 3.2 (2021), 8.2 (2022), 6.9 (2023), 15.5 (2024), 19.3 (2025), 8.8 (2026), 6.6 (2027), 8.5 (2028), 8.0 (2029), 7.3 (2030). - Private sector deposits (percent change): -2.0 (2020), 15.7 (2021), 23.0 (2022), 8.9 (2023), 8.0 (2024), 10.3 (2025), 5.9 (2026), 5.3 (2027), 5.1 (2028), 5.6 (2029), 4.7 (2030). - Directors encouraged continued close monitoring for early signs of stress—particularly in cash loans and the real estate sector—and to maintain robust supervision, including strong anti–money laundering (AML) enforcement. - Directors cautioned that the Development Bank should remain focused on its historical mandate to avoid fiscal or financial stability risks. - Importance emphasized of safeguarding operational independence of the central bank and ensuring it is staffed with individuals with appropriate skills and experience, in accordance with central bank law. ### Outlook, risks, and structural priorities - Real GDP growth projections (percent change): -15.0 (2020), 13.0 (2021), 7.7 (2022), 6.5 (2023), 3.2 (2024), 3.2 (2025), 3.2 (2026), 3.0 (2027), 3.0 (2028), 3.0 (2029), 3.0 (2030). - With the output gap likely closed, medium-term baseline growth is forecast to hover around the estimated potential growth rate of around 3 percent. - Re-establishing the link between wage and productivity growth highlighted as important. - Directors noted external position remains substantially weaker than levels consistent with fundamentals and desirable policy settings; called for a well-coordinated strategy to diversify the economy both within and beyond tourism and to develop a business climate conducive to investors. - Climate policy objectives should be aligned with those of the EU. ### Executive Board assessment and policy recommendations - Executive Directors commended Montenegro’s resilience and strong fundamentals but noted the post-pandemic recovery has matured and the country remains exposed to global shocks that affect tourism and relies on external financing. - Main policy recommendations (as reflected in the staff report and Board views): - Fiscal policy: Move toward balancing the primary budget given the cyclical position; recalibrate fiscal policy toward a balanced primary budget; strengthen the Fiscal Responsibility Law; operationalize the independent Fiscal Council; improve civil service and healthcare efficiency; better targeting of social benefits; link retirement age to life expectancy; enhance public investment management. - Financial sector: Continue close monitoring of credit risk given rapid growth in private-sector lending and rising real estate prices; maintain robust supervision and strong AML enforcement; clarify mandate and operations of the Development Bank to ensure consistency with domestic legislation and EU standards; safeguard central bank independence and staffing. - Structural reforms: Accelerate reforms to diversify the economy and boost productivity; strengthen economic governance; address data gaps; use EU accession process as an anchor for reforms. ### Key statistics (selected) - Real GDP growth: 9 percent average (2021–23); 3.2 percent (2024); 3.2 percent (2025 projection). - Headline inflation: 13 percent (peak 2022), 1 percent (September 2024), 4.9 percent (September 2025). - Core inflation: 3.2 percent (as reported). - General government gross debt: 59.6 percent of GDP (2023), 60.8 percent of GDP (2024 and 2025). - Current account balance: -17.1 percent of GDP (2024), -18.1 percent of GDP (2025). - Nominal GDP (millions of €): 7,645 (2024), 8,280 (2025), 8,771 (2026). - GDP per capita (USD): 12,262 (2023), 13,259 (2024). - Unemployment rate: 17.9 (2020), 16.6 (2021), 14.7 (2022), 13.1 (2023), 11.4 (2024). *Source: MONTENEGRO STAFF REPORT FOR THE 2025 ARTICLE IV CONSULTATION (excerpts and tables as provided in the source content).* ### Box 1. EU Accession: Potential Gains and Challenges ### Box 1. EU Accession: Potential Gains and Challenges ### Evidence on EU accession and cross-country determinants of gains - EU membership has raised per capita income significantly for accession countries on average. - Using a difference-in-differences approach that compares 2004 EU accession countries to a synthetic country that approximates what would have happened without EU accession, the GDP per capita gains are estimated at about 17 percent from 2004 to 2019. - Considerable heterogeneity across countries: - Comparing the 75th percentile to the 25th percentile of EU accession countries in 2004 in terms of the change in economic diversification, the former has enjoyed 24 percent more gains in GDP per capita over 10 years. - With respect to the change in government effectiveness and the change in innovation, those at the 75th percentile have reaped 10 percent and 16 percent more in GDP per capita gains, respectively, than those at the 25th percentile. - Mechanisms: EU accession brings productivity increases, capital inflows, and trade integration, but also heightened competition and the allure of outward labor migration. - Recent studies indicate that lower migration costs following EU accession could reduce potential output unless offset by productivity improvements. ### Montenegro: risks to capturing accession gains and recommended strategic focus - Structural vulnerability and exposure: - Montenegro’s economy is heavily dependent on tourism; growth is increasingly consumption driven. - With EU accession, risks include brain and muscle drain and more imports from the EU, which could worsen an already elevated trade deficit. - Potential new visa requirements could affect tourism (currently dominated by Russia, Türkiye, and Serbia). - Recent studies show migration could lower potential output if there are no offsetting improvements in productivity. - Policy recommendations to reap full benefits: - Develop a clear strategy that improves productivity, bolsters the labor market, and attracts FDI into a wider range of sectors beyond tourism, construction, and real estate. - Prioritize diversification into areas such as agriculture, clean energy, digital services, and niche tourism markets. ### Recent macroeconomic developments (selected indicators and facts) - Growth and inflation: - Real GDP growth moderated to 3.2 percent in 2024, and into the first half of 2025. - Headline inflation: peaked at 13 percent in 2022; fell to just 1 percent by September 2024; increased to 4.9 percent as of September 2025. - Core inflation (excluding food and energy) at 3.2 percent (as of September 2025). - The differential in headline inflation relative to the euro area widened to 2.7 percentage points (after narrowing from nearly 8 percentage points in 2022 to -0.8 percentage points in 2024). - Public finances and fiscal developments: - Public debt trend: "declined by some 4 8 percentage points" between 2020 and 2023 (driven largely by strong nominal and real GDP growth) — this trend has started to reverse. - Consolidated general government budget balance: surplus of 0.4 percent of GDP in 2023 → deficit of 3.4 percent in 2024. - Preliminary central government data: weaker-than-expected revenue performance during the first eight months of 2025, primarily attributable to a reduction in pension contributions under the EN2 program. - Credit and banking sector: - Credit expanded by 13.3 percent in 2024 and accelerated to 16.3 percent as of September 2025. - Non-financial corporate lending increased by 23.6 percent; household lending increased by 21.2 percent. - NPL ratio fell to 2.9 percent in Q2 2025 (down from an average of 6.1 percent in 2022). - External sector: - Current account deficit widened to above 17 percent of GDP in 2024 (up from an average of some 12 percent during 2022–23). - Goods exports declined by 8 percent (driven mainly by decreases in electricity and aluminum exports); goods imports grew by 7 percent. - External Sector Assessment: Montenegro’s external position in 2024 was substantially weaker than levels consistent with underlying fundamentals and appropriate policy settings. - Competitiveness: despite an appreciation of the REER, Montenegro’s REER appreciation and labor costs remain relatively low compared to peers. ### Outlook and scenario projections (selected figures reproduced exactly) - Near-term projections and inflation path: - Real GDP growth is projected at 3.2 percent in 2025 and is expected to hover at similar levels over the forecast horizon. - Average inflation forecast: around 4 percent in 2025, before gradually converging toward the ECB’s 2 percent target over the medium term. - Alternative scenarios (Text Table 3: Montenegro: Alternative Scenarios — staff calculations) - Baseline scenario (2026, 2027, 2028): Real GDP growth (percent) 3.2 3.0 3.0 - Inflation (avg, percent) 2.4 2.2 2.0 - Public debt (percent of GDP) 61.5 61.7 62.3 - Current account balance (percent of GDP) (17.0) (16.5) (16.0) - Downside scenario (2026, 2027, 2028): Real GDP growth (percent) 2.8 2.8 3.0 - Inflation (avg, percent) 2.2 2.0 2.0 - Public debt (percent of GDP) 62.0 62.5 63.0 - Current account balance (percent of GDP) (16.7) (16.2) (16.0) - Upside scenario (2026, 2027, 2028): Real GDP growth (percent) 3.7 3.5 4.0 - Inflation (avg, percent) 2.7 2.7 3.0 - Public debt (percent of GDP) 61.0 60.6 60.0 - Current account balance (percent of GDP) (17.2) (17.4) (17.6) - Risk assessment: - Primary downside risk: weak tourism growth (global slowdown or idiosyncratic factors). - Vulnerabilities: high gross financing needs (GFN) of the public sector (averaging about 13 percent of GDP throughout the forecast period) and dependence on FDI to fill the current account deficit. - Favorable scenario: successful attraction of well-directed capital inflows (aided by a successful EU accession process) could raise real GDP growth by 0.5 percentage points in both 2026 and 2027, and by 1 percentage point over the remainder of the forecast period. ### Fiscal policy guidance to anchor accession and sustainability - Immediate fiscal context: - Budget deficit projected to widen to 3.6 percent of GDP in 2025, mainly driven by the drop in projected pension contributions—from 6.6 percent of GDP in 2024 to 4.5 percent in 2025 (staff estimates). - Authorities introduced compensatory measures in the 2025 budget: (i) excise taxes on alcoholic and sugary beverages; (ii) increase in the VAT rate on tourism-related services from 7 to 15 percent; (iii) removal of the zero VAT rate on construction and equipment for high-end hospitality projects, major energy initiatives, and select food-processing activities. - Staff expect these measures will boost overall tax revenues (excluding social security contributions) by 1.8 percentage points of GDP in 2025, which is still insufficient to fully offset the decline in social security contributions. - Consolidated general government (Text Table 4: percent of GDP, IMF staff calculations) - 2024 / 2025 (proj) - Total Revenues 40.7 40.2 - Taxes 29.0 30.8 - Personal income tax 2.5 2.9 - Corporate income tax 2.8 3.0 - Value added tax 16.0 16.8 - Excises 4.8 5.0 - Social security contributions 6.6 4.5 - Total Expenditures 38.5 38.2 - Capital Expenditure 5.6 5.6 - Overall balance -3.4 -3.6 - Primary balance -1.4 -1.5 - Strategic fiscal recommendations: - Given a projected positive output gap, the optimal fiscal stance is to aim for a balanced primary budget and to front-load fiscal consolidation to lower public debt below the 60 percent threshold mandated by the Law on Budget and Fiscal Responsibility. - Proposed measures and estimated impacts (Text Table 5 and accompanying text): - Constrain public wage bill growth to the rate of inflation, generating estimated savings of 0.9 percent of GDP relative to the baseline by 2028. - Context: The wage bill averaged 11.4 percent of GDP and about 30 percent of total spending during 2020-2024; public sector wage increases in sensitive/highly paid professions have been increasing at around twice the rate of inflation. - Complete the long-delayed airport concession and save temporary windfall revenues: potential yield about 1.1 percent of GDP. - Montenegro launched the airport concession process in 2019 to award a 30-year concession for Podgorica and Tivat airports. - Reduce unproductive tax expenditures: conservatively estimated to generate 0.4 percent of GDP relative to the baseline in 2026–28 (tax expenditures currently estimated at about 4.4 percent of GDP; IMF May 2025 TA report identifies 2.7 percent of GDP in VAT-related tax expenditures that could be reconsidered). - Revenue administration reforms and implementation of the fuel-marking system could provide additional gains: - Revenue admin reforms (expected by IMF TA): estimated additional revenues of approximately 0.9 percent of GDP (priority actions include integrated tax system digitalization, real-time audits, data analytics, improved international financial information exchange, and more inspectors). - Fuel marking: additional annual impact reported in Text Table 5 as 0.3 0.3 0.3 (percent of GDP across years). - Aggregate illustrative impacts (Text Table 5, IMF staff calculations): - Menu of potential fiscal adjustment measures (percent of GDP): - Confining Wage Bill to Inflation: 0.3 0.6 0.9 (2026, 2027, 2028) - Saving Airport Concession Revenue: 1.1 0.0 0.0 - Reducing Tax Expenditures: 0.4 0.4 0.4 - Total Annual Impact (selected years): 1.8 1.0 1.3 - Primary Balance (baseline) -1.4 -1.5 -1.3 - Primary Balance (after measures) 0.4 -0.5 0.0 - Public Debt (baseline) 61.5 61.7 62.3 - Public Debt (after measures) 59.7 58.9 58.2 - Additional Measures (Revenue Admin Reforms 0.3 0.6 0.9; Fuel Marking 0.3 0.3 0.3) could lower Public Debt (after additional measures) to 59.1 57.4 55.5 - Implementation caveats: - Containing wage bill growth to the rate of inflation may prove challenging, though its impact on economic growth is expected to be limited. - Modernizing airports is growth-friendly given tourism dependence. - These measures account for currently programmed additional military expenditures, estimated at about 0.2 percent of GDP annually. *Italicized attribution to the IMF staff calculations and sources as presented in the original content.* ### 13. The overall risk of sovereign stress is ### The overall risk of sovereign stress is ### Sovereign risk assessment and fiscal policy recommendations - Overall risk of sovereign stress assessed as moderate; debt sustainability analysis highlights need to address long-term spending pressures (Annex VII). - Main drivers of rising expenditure pressures: healthcare costs and pension outlays. - Key structural fiscal reforms recommended: - (i) restoring prior plans to more strongly link the statutory retirement age to life expectancy; - (ii) enhancing means-testing for social benefits (endorsed in principle by authorities but not yet legislated); - (iii) implementing cost-containment measures in the health sector to achieve additional savings; - (iv) comprehensive civil service reforms; - (v) enhancing progressivity in the personal income tax (PIT) structure; - (vi) aligning excise tax rates with EU directives. - NATO-related defense spending implication: - As a NATO member, Montenegro will have to raise the national defense spending target from 2 percent of GDP to 5 percent by 2035, allocating 3.5 percent of GDP for core military capabilities. - The Ministry of Defense has requested to increase military expenditures by 0.2 percent of GDP annually until 2028, which is incorporated into the baseline scenario. ### Public investment management (PIM) and EU accession funding - Historical and planned public investment: - Between 2012 and 2019, public investment averaged 6.8 percent of GDP annually, contributing to an increase of 4.4 percent of GDP in public capital stock. - A substantial share of recent investment during this period was allocated to the second stage of the Bar–Boljare Highway—at a cost about €600 million (an estimated 7.3 percent of GDP as of 2025). - The government plans to maintain capital spending at around 5.5 percent of GDP over 2025–30. - EU accession funding context: - Montenegro has been allocated €383.5 million in pre-accession grants and loans from the EU over the 2025–28 period. - Historically, net EU budget transfers to accession countries have increased from a median of 0.3 percent of GDP at the time of accession to roughly 2.8 percent within five years. - PIM technical recommendations (IMF June 2022 TA): - (i) improving project preparation, appraisal, and selection; - (ii) strengthening portfolio monitoring. - Rationale: Better PIM would enhance economic growth, increase efficiency of capital expenditures, and position Montenegro to fully leverage EU accession funds. ### Strengthening fiscal institutions - Fiscal Responsibility Law and Fiscal Council: - The Fiscal Responsibility Law prescribes corrective action when fiscal targets are missed, but current design is largely symbolic (Annex I). - Amendments needed to: clearly and narrowly define exceptional circumstances for temporary suspension of the law; specify clear timelines for corrective action. - Enhancing fiscal risk assessments would support enforcement of fiscal discipline. - Operationalizing the long-delayed independent Fiscal Council is an immediate priority to provide transparent advice and early warnings; authorities hope the Fiscal Council will become operational in early-2026 (subject to parliamentary action). - Note: The law states that “if the level of the deficit during the fiscal year exceeds the limit, the government shall, within 60 days, from the date of determination of the deviation, submit to the parliament a proposal for measures to remedy the deficit.” This has not been enforced, resulting in persistent breaches of the 3 percent of GDP deficit threshold, and debt peaking at over 107 percent of GDP in 2020. ### Financial sector—stability, supervision, and new institutions - Banking sector metrics and risks: - As of Q2 2025, the average capital adequacy ratio was 19.5 percent—about twice the regulatory minimum. - Profitability, measured by return on equity, remained robust at 15.2 percent. - Decline in non-performing loan (NPL) ratios provides comfort, but strong credit growth calls for focus on forward-looking indicators (such as 30-day past-due loans). - AML/CFT and financial integrity: - Breaches of AML/CFT regulations have prompted the CBCG to impose fines on several banks. - Montenegro’s position as a regional transit corridor increases exposure to illicit financial flows and organized crime. - Recommended actions: intensified risk-based supervision of high-risk sectors, enhanced transparency of beneficial ownership, improved cross-border cooperation, and strengthening the AML/CFT framework. - Property market and macroprudential policy: - Nationwide, real estate prices have increased by 128 percent in real terms since 2020, with largest gains in the capital and coastal regions. - CBCG actions: raised the countercyclical capital buffer (CCyB) to 0.5 percent in April 2025, with a further increase to 1 percent planned for January 2026. - CBCG is beginning to collect borrower-based measures (BBM) such as debt-service-to-income (DSTI) and loan-to-value (LTV) ratios; improvements in BBM data quality and modelling are advised. - Development bank (RBCG) governance risks: - Law on the Development Bank (October 2024) transformed the Investment and Development Fund into the Development Bank of Montenegro (RBCG). - Per the law (as drafted), the RBCG is authorized to accept deposits without clear specification of deposit types; deposits are not required to be covered under the Deposit Protection Law or the Deposit Protection Fund. - The law permits the RBCG to provide payment services, but PSD2 does not allow institutions like the RBCG to do so. - The RBCG has not yet produced a strategy or business plan; gaps could introduce fiscal and financial stability risks. - Parliament is considering amendments to contain RBCG’s scope and ensure compliance with national and EU legal provisions. - SEPA accession and central bank concerns: - Integration into SEPA expected to lower transaction costs and strengthen integration; could reduce CBCG fee income from domestic payment services. - Central bank operational independence must be preserved; staff and appointment processes (including two vacant vice-governor positions pending parliamentary confirmation) should ensure fit-and-proper standards and avoid political interference. - CBCG is undergoing a peer assessment relative to Eurosystem central banks; strengthening governance and modernizing operations will be essential. ### Structural policies, labor market, and informality - Structural reform priorities: - (i) diversify the economy by tapping renewable energy resource endowments; - (ii) raise female labor participation rates; - (iii) improve the business climate for SMEs to attract high-skill companies; - expand tourism offerings (extend the season, expand niche markets like adventure tourism, cultivate “digital nomads”). - Europe Now (EN) initiatives—effects on informality and employment: - Staff analysis using anonymized tax data (Annex II) estimates reductions in envelope wages: - Average estimated reduction: €38/month for EN1 and €21/month for EN2. - Variance is significant: some workers earning the minimum wage officially may have experienced up to €217/month (EN1) and €290/month (EN2) in envelope wage reductions. - Employment contributions: - Roughly two thirds of the new employment created between 2021 and 2024 was due to broad favorable macro conditions; further gains due to formalization. - Policy implication: EN programs reduced envelope wages and contributed to formal employment, but a more granular, sectoral analysis suggests that further increases in the minimum wage could reintroduce informality through misreporting or shifts to more opaque noncompliance, weakening the link between wages and productivity. Introduction of a shortened workday could reduce labor supply and constrain productivity growth. ### Energy, carbon pricing, and climate-related macro-fiscal risks - Carbon pricing and electricity competitiveness: - Electricity exports to the EU represent around 20 percent of Montenegro’s total exports. - Effective January 1, 2026, EU importers of Montenegrin electricity will incur CBAM-related costs equal to the difference between the EU ETS price (currently around EUR 80/tCO2e) and the fixed Montenegrin carbon price of EUR 24/tCO2e. - Montenegro’s electricity sector has high emission intensity (coal accounts for around 30–40 percent of electricity production). - To avoid immediate CBAM-related costs, Montenegro must reform its national ETS to align with the EU ETS (increase domestic carbon price, establish EU-compliant MRVA system). - Raising domestic carbon price likely to increase domestic energy costs; recommended policy: prioritize expansion of renewable energy generation and distribution capacity and target support to economically vulnerable households impacted by higher energy prices. - Context: The national ETS market is currently inactive. A new Climate Change Law will include legislation to better align the national ETS with the EU ETS. The Ministry of Energy and Mining has launched an auction for 250MW of solar energy. This compares with Montenegro’s total installed electricity generation capacity of 1,067 MW as of 2023. - Climate adaptation and macro-fiscal risks: - Montenegro vulnerable to floods and droughts; relies heavily on rainfall for water supply and hydroelectric generation; forests cover 60 percent of territory. - DIGNAD model simulations (Annex III): a calibrated scenario indicates a major climate shock could result in immediate output losses of up to 8 percent of GDP and longer-term scarring of around 0.7 percent of GDP. - Policy response: investing an additional 0.6-0.9 percent of GDP annually in climate-resilient infrastructure (aligned with World Bank CCDR estimate) and improving public investment efficiency per C-PIMA recommendations can substantially reduce short-term losses and eliminate long-term scarring. - Montenegro published its National Adaptation Plan in September 2025; authorities are mainstreaming adaptation into sectoral policies and planning, including legal reforms and institutional coordination through the National Council for Sustainable Development. - Climate mitigation commitment: - Montenegro revised its Nationally Determined Contribution target in February 2025: committed to reducing national greenhouse gas emissions by 55 percent and 60 percent by 2030 and 2035 respectively relative to 1990 levels. *International Monetary Fund* ### 28. The data provided to the Fund have some shortcomings but are broadly adequate for ### 28. The data provided to the Fund have some shortcomings but are broadly adequate for surveillance ### Data and statistics - MONSTAT recently revised national accounts for the period 2006–25, adopting the ESA 2010 methodology with a new base year (2020). - The CBCG estimates tourism revenues for balance-of-payments purposes in full compliance with the IMF’s BPM6 methodology, but this relies on transforming primary data from multiple agencies (Ministry of Tourism, MONSTAT, local tourism offices) that report visitor numbers, lengths of stay, and types of accommodation. - Key statistical challenge: need for more granular data and improved methodologies to accurately distinguish between tourists and migrants so that their respective expenditures are properly captured and allocated. - Implementation needs: time, strong interagency coordination, and sustained institutional commitment. - Recommendation: agencies responsible for primary data collection should prioritize methodological enhancements and assume full responsibility for producing tourism statistics. - Interim priority: timely resumption of detailed balance-of-payments data publication to ensure transparency and support robust economic analysis. ### Macroeconomic assessment (Staff Appraisal) - Post-pandemic recovery has matured; the robust 9 percent average growth from 2021–23 was aided by tailwinds (sharp rebound in tourism, affluent migrant inflows) which are now fading. - Baseline growth outlook: expected to moderate to potential rate of around 3 percent over the foreseeable future. - Inflation outlook: expected to gradually moderate as wage and potential energy price related pressures dissipate. - External vulnerabilities: as a small and open economy, Montenegro remains exposed to global shocks affecting tourism and depends on external financing to meet high public and external funding needs. - Policy anchor: EU accession process provides an ideal anchor for needed reforms. - Time window: the window of opportunity over the next 3-5 years is unique and must be fully utilized. ### Fiscal policy and medium-term pressures - Immediate fiscal imperative: recalibration of fiscal policy to target a balanced primary budget and rebalance toward more investment rather than consumption. - Europe Now initiatives: measurable positive impact in reducing labor market informality and enhancing financial inclusion, but fiscal costs remain being addressed. - Near-term feasibility: goals can be met through fiscal measures feasible to implement with strong commitment from authorities over the next few years. - Long-term fiscal gap: by 2035, Montenegro will need an additional 5 –6 percent of GDP to meet pressures from population aging, defense commitments, and climate change. - Required deeper structural reforms: civil service and healthcare efficiency improvements, better targeting of social benefits, linking retirement to life expectancy, and improving public investment management. ### Fiscal institutions - Strengthen the Fiscal Responsibility Law and operationalize the independent Fiscal Council to guide fiscal policy recalibration. - Suggested amendments: clearly and narrowly define exceptional circumstances for temporary suspension of the law and specify timelines for corrective actions. - Operational priority: promptly finalize membership and operationalize the long-delayed independent Fiscal Council to enhance monitoring, transparent advice, and early warnings. ### Financial sector and CBCG (Central Bank) - Banking sector: broadly healthy with strong capital, liquidity, and asset quality indicators. - Recent developments: rapid growth in private-sector lending and surging real estate prices prompted the CBCG to appropriately raise capital levels as a precaution. - Supervision priorities: continue monitoring early signs of stress (particularly in cash loans and real estate), maintain robust supervision including in AML enforcement. - Financial integration: Montenegro’s integration into SEPA and TIPS Clone will strengthen financial integration with Europe and lower transactions costs. - Development Bank of Montenegro (RBCG): should focus on historical mandate—expanding credit access to underserved sectors and regions—and avoid new activities that could create fiscal or stability risks. - Central bank operational independence: vital for stability; CBCG responsibilities include banking supervision, macroprudential policies, AML supervision, contingency planning, and, upon eurozone accession, monetary policy. - Governance and staffing: CBCG must be staffed by individuals with appropriate skills and experience in accordance with central bank law; parliamentary confirmation of vacant senior positions and remaining non-executive governing council members should be completed expeditiously. ### Structural reforms, diversification, and competitiveness - External position: substantially weaker than the level consistent with fundamentals and desirable policy settings; reducing external imbalances and boosting potential growth remain priorities. - Tourism strategy: diversify tourism into eco-friendly and adventure segments and reduce overall reliance on tourism by diversifying the economy. - Business climate: a well-organized strategy to enhance predictability would increase attractiveness for SMEs and larger foreign investors, reduce concentration of foreign investment in tourism, construction, and real estate, and raise growth without increasing debt. ### Labor market and wages - Policy objective: re-establish the link between wage and productivity growth. - Europe Now aftermath: future wage growth must be matched by productivity to preserve competitiveness and avoid wage-price spirals. - Public wage bill: restraining growth of the public wage bill is important; policies to shorten working hours could adversely affect labor supply and employment costs. ### Climate change and energy - Climate policy needs: align domestic carbon price to EU levels and expand renewable energy capacity to maintain export competitiveness in the electricity sector. - Social protection: support to households from likely higher energy costs must be targeted to the vulnerable. - Infrastructure: appropriate investments in climate-resilient infrastructure can reduce costs of extreme climate events. ### Recommendation and timing - It is recommended that the next Article IV consultation be held on the standard 12-month cycle. *IMF staff appraisal and accompanying sectoral findings as presented in the source content.* ### 1. Revenue1,8172,1382,2652,8803,1093,329 ### 1mneea2025002-source-pdf - 1. Revenue1,8172,1382,2652,8803,1093,329 ### Consolidated general government fiscal operations: levels (Millions of euros) - Revenue (series): 1,817 2,138 2,265 2,880 3,109 3,329 3,559 3,752 3,952 4,158 4,367 - Taxes (series): 1,128 1,379 1,558 1,890 2,220 2,550 2,701 2,849 3,003 3,160 3,319 - Personal income tax: 168 185 137 151 191 237 251 269 282 297 312 - Corporate income tax: 787 590 151 214 247 261 275 299 315 331 - Property taxes: 72 101 107 118 122 132 140 147 155 163 171 - Value added tax: 530 692 908 1,059 1,223 1,389 1,472 1,549 1,627 1,713 1,799 - Excises: 205 249 246 323 369 414 439 462 485 511 536 - Taxes on international trade: 232 84 52 60 65 69 73 78 81 85 - Local government taxes: 42 38 172 2 272 931 323 436 38 - Other taxes: 10 11 12 14 153 739 414 345 47 - Social security contributions 2/: 480 497 406 514 505 374 394 414 435 458 481 - Nontax revenues: 144 212 214 354 279 291 341 359 377 397 417 - Grants: 65 50 87 123 105 114 123 130 136 144 151 - Expense (series): 1,958 1,935 2,153 2,515 2,945 3,164 3,363 3,553 3,746 3,946 4,154 - Gross salaries and other personal income: 566 603 623 739 781 856 907 955 1,003 1,055 1,110 - Use of goods and services: 172 152 167 188 200 215 227 239 247 265 279 - Interest payments: 114 117 94 128 152 176 196 214 245 258 272 - Subsidies to enterprises: 38 52 73 79 95 99 105 110 116 122 123 - Other current outflows: 55 45 71 63 100 108 113 119 120 126 128 - Social security transfers: 559 568 668 825 1,013 1,096 1,165 1,231 1,297 1,365 1,450 - Other transfers: 335 317 428 469 546 589 624 656 688 723 759 - Repayment of guarantees: 0 8 13 6 0 0 0 0 0 0 0 - Reserves: 119 74 28 21 53 25 27 29 30 32 33 - Gross operating balance (= 1 - 2): -141 203 113 365 163 165 196 199 205 212 214 - Net acquisition of nonfinancial assets: 307 267 353 337 426 463 518 554 581 632 675 - Capital revenue: -8 -15 0 0 0 0 0 0 0 0 0 - Capital expenditure: 315 282 353 337 426 463 518 554 581 632 675 - Net lending (+) / borrowing (-) (= 3 - 4): -448 -64 -241 28 -263 -298 -322 -355 -376 -420 -462 - Net acquisition of financial assets: 232 -339 -324 113 434 165 49 -39 -258 49 - Domestic: 232 -339 -324 113 434 165 49 -39 -258 49 - Currency and deposits: 247 -331 -327 119 441 182 68 -21 -626 68 - Loans: 540 100 0 0 0 0 0 0 0 0 0 - Equity and investment fund shares: -19 -122 -7 -8 -18 -18 -18 -18 -18 -18 -18 - Net incurrence of liabilities: 706 -130 -592 0 490 345 436 130 534 041 6498 - Domestic: -69 105 8289 -110 131 -12 28 -788 -10 - Foreign: 775 -235 -140 -696 033 243 733 324 174 085 08 - Memorandum items: - Primary balance: -334 53 -146 155 -110 -123 -126 -140 -131 -162 -190 - Current balance: -206 153 252 425 951 736 9 696 863 - Nominal general government debt: 4,493 4,243 4,180 4,211 4,645 5,034 5,396 5,701 6,042 6,458 6,956 - Nominal gen. gov. debt, with guarantees: 4,712 4,438 4,361 4,392 4,826 5,215 5,577 5,883 6,223 6,639 7,138 - Nominal GDP: 4,145 4,923 5,944 7,069 7,645 8,280 8,771 9,233 9,700 10,207 10,720 ### Fiscal operations: percent of GDP (2020–30, GFSM2014) - 1. Revenue: 43.8 43.4 38.1 40.7 40.7 40.2 40.6 40.6 40.7 40.7 40.7 - Taxes: 27.2 28.0 26.2 26.7 29.0 30.8 30.8 30.9 31.0 31.0 31.0 - Personal income tax: 4.1 3.7 2.3 2.1 2.5 2.9 2.9 2.9 2.9 2.9 2.9 - Corporate income tax: 1.9 1.5 1.5 2.1 2.8 3.0 3.0 3.0 3.1 3.1 3.1 - Property taxes: 1.7 2.0 1.8 1.7 1.6 1.6 1.6 1.6 1.6 1.6 1.6 - Value added tax: 12.8 14.1 15.3 15.0 16.0 16.8 16.8 16.8 16.8 16.8 16.8 - Excises: 5.0 5.1 4.1 4.6 4.8 5.0 5.0 5.0 5.0 5.0 5.0 - Taxes on international trade: 0.5 0.6 0.7 0.7 0.8 0.8 0.8 0.8 0.8 0.8 0.8 - Local government taxes: 1.0 0.8 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.4 0.4 - Other taxes: 0.2 0.2 0.2 0.2 0.2 0.4 0.4 0.4 0.4 0.4 0.4 - Social security contributions 2/: 11.6 10.1 6.8 7.3 6.6 4.5 4.5 4.5 4.5 4.5 4.5 - Nontax revenues: 3.5 4.3 3.6 5.0 3.6 3.5 3.9 3.9 3.9 3.9 3.9 - Grants: 1.6 1.0 1.5 1.7 1.4 1.4 1.4 1.4 1.4 1.4 1.4 - 2. Expense: 47.2 39.3 36.2 35.6 38.5 38.2 38.3 38.5 38.6 38.7 38.7 - Gross salaries and other personal income: 13.7 12.2 10.5 10.5 10.2 10.3 10.3 10.3 10.3 10.3 10.4 - Use of goods and services: 4.1 3.1 2.8 2.7 2.6 2.6 2.6 2.6 2.5 2.6 2.6 - Interest payments: 2.7 2.4 1.6 1.8 2.0 2.1 2.2 2.3 2.5 2.5 2.5 - Subsidies to enterprises: 0.9 1.1 1.2 1.1 1.2 1.2 1.2 1.2 1.2 1.2 1.1 - Other current outflows: 1.3 0.9 1.2 0.9 1.3 1.3 1.3 1.3 1.2 1.2 1.2 - Social security transfers: 13.5 11.5 11.2 11.7 13.2 13.2 13.3 13.3 13.4 13.4 13.5 - Other transfers: 8.1 6.4 7.2 6.6 7.1 7.1 7.1 7.1 7.1 7.1 7.1 - Repayment of guarantees: 0.0 0.2 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 - Reserves: 2.9 1.5 0.5 0.3 0.7 0.3 0.3 0.3 0.3 0.3 0.3 - 3. Gross operating balance (= 1 - 2): -3.4 4.1 1.9 5.2 2.1 2.0 2.2 2.2 2.1 2.1 2.0 - 4. Net acquisition of nonfinancial assets: 7.4 5.4 5.9 4.8 5.6 5.6 5.9 6.0 6.0 6.2 6.3 - Capital revenue: -0.2 -0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Capital expenditure: 7.6 5.7 5.9 4.8 5.6 5.6 5.9 6.0 6.0 6.2 6.3 - 5. Net lending (+) / borrowing (-) (= 3 - 4): -10.8 -1.3 -4.0 0.4 -3.4 -3.6 -3.7 -3.8 -3.9 -4.1 -4.3 - 6. Net acquisition of financial assets: 5.6 -6.9 -5.5 1.6 5.7 2.0 0.6 -0.4 -0.3 0.1 0.5 - Domestic: 5.6 -6.9 -5.5 1.6 5.7 2.0 0.6 -0.4 -0.3 0.1 0.5 - Currency and deposits: 6.0 -6.7 -5.5 1.7 5.8 2.2 0.8 -0.2 -0.1 0.3 0.6 - Loans: 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Equity and investment fund shares: -0.5 -0.2 0.0 -0.1 -0.1 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 - 7. Net incurrence of liabilities: 17.0 -2.6 -1.0 0.3 6.4 5.5 4.1 3.3 3.5 4.1 4.6 - Domestic: -1.7 2.1 1.4 1.3 -1.4 1.6 -0.1 -0.3 -0.8 0.1 -0.1 - Foreign: 18.7 -4.8 -2.4 -1.0 7.9 3.9 4.3 3.6 4.3 4.0 4.7 - Memorandum: - Primary balance: -8.1 1.1 -2.5 2.2 -1.4 -1.5 -1.4 -1.5 -1.3 -1.6 -1.8 - Current balance: -5.0 3.1 0.4 3.4 0.8 0.6 0.8 0.8 0.7 0.7 0.6 ### Financial system summary (selected items, Millions of euros and ratios) - Central Bank / Banking System / Consolidated system figures presented for 2020–30 (selected highlights): - Net foreign assets (central bank series): 163 715 701 733 126 715 441 703 174 917 031 670 1670 1712 (note: series format preserved as in source) - Net domestic assets (consolidated): -1501 -1415 -1608 -1188 -1458 -1610 -1651 -1599 -1561 -1556 -1592 - Credit to the private sector (consolidated): 2,511 2,591 2,804 2,997 3,462 4,130 4,495 4,793 5,198 5,613 6,022 - Deposits included in broad money: 567 895 1,112 1314 1515 1615 1617 - Broad money (memo): 2,484.4 2,872.3 3,531.4 3,849.2 4,184.4 4,567.3 4,810.5 5,039.4 5,270.4 5,540.4 5,780.5 - Credit to private sector / GDP: 60.6 52.6 47.2 42.4 45.3 49.9 51.2 51.9 53.6 55.0 56.2 - Effective required reserves ratio: 8.1 8.5 8.4 8.5 8.3 8.3 8.3 8.3 8.3 8.3 8.3 ### Balance of payments: levels (Millions of euros) and percent of GDP - Current account balance (levels): -1,090 -456 -766 -791 -1,307 -1,501 -1,491 -1,523 -1,550 -1,581 -1,612 - Trade balance: -1,642 -1,915 -2,670 -2,986 -3,300 -3,607 -3,653 -3,745 -3,837 -3,931 -4,023 - Exports: 409 526 763 716 660 622 744 787 823 860 897 - Imports: 2,051 2,441 3,434 3,702 3,960 4,229 4,398 4,532 4,660 4,790 4,921 - Services account: 177 956 1,317 1,689 1,584 1,566 1,589 1,618 1,653 1,685 1,718 - Receipts: 679 1,597 2,289 2,764 2,684 2,750 2,830 2,911 2,997 3,082 3,170 - Expenditures: 503 641 972 1,075 1,101 1,183 1,242 1,293 1,343 1,397 1,451 - Primary income: 67 102 119 67 -21 26 27 29 29 25 - Compensation of employees, net: 216 283 286 278 264 331 351 369 388 408 429 - Investment income, net: -150 -180 -167 -211 -285 -305 -323 -341 -358 -379 -403 - Secondary income: 308 401 469 438 431 513 546 575 604 636 668 - Government, net: 51 64 25 93 48 91 61 01 10 61 11 1 - Other sectors, net: 258 335 427 379 397 430 455 479 503 530 556 - Financial account (levels): -1,367 -426 -830 -285 -1,394 -1,660 -1,537 -1,476 -1,517 -1,581 -1,654 - Foreign direct investment, net: -471 -582 -783 -434 -491 -571 -645 -680 -716 -753 -798 - Portfolio investment, net: -394 548 175 446 -329 -293 403 583 761 46 -334 - General government, net change in liabilities: 424 -227 0 0 688 350 0 0 250 750 - Eurobond: 424 -227 0 0 688 350 0 0 250 750 - Disbursements (increase in liabilities): 745 000 688 850 075 007 50750 - Amortization (reduction in liabilities): -321 -227 000 -500 0 -7500 -5000 - Other investment, net: -502 -388 -208 -231 -547 -1,060 -1,232 -1,154 -1,178 -974 -522 - General government: -322 -191 741 106 626 -373 -332 -417 -158 242 - Commercial banks: -69 -89 -103 19 -22 -109 -114 -119 -124 -130 -136 - Other sectors: -111 -280 -371 -660 -591 -978 -744 -702 -636 -687 -628 - Change in official reserves (+ denotes increase): 374 716 5 -483 243 159 46 -47 -320 42 - Memorandum (percent of GDP highlights): - Current account balance: -26.3 -9.3 -12.9 -11.2 -17.1 -18.1 -17.0 -16.5 -16.0 -15.5 -15.0 - Trade balance: -39.6 -38.9 -44.9 -42.2 -43.2 -43.6 -41.7 -40.6 -39.6 -38.5 -37.5 - Exports: 9.9 10.7 12.8 10.1 8.6 7.5 8.5 8.5 8.5 8.4 8.4 - Imports: 49.5 49.6 57.8 52.4 51.8 51.1 50.1 49.1 48.0 46.9 45.9 - Gross external debt: 223.5 193.5 158.1 128.2 126.6 142.0 149.9 156.8 163.2 168.9 174.6 - of which: Government: 92.5 74.9 60.5 50.4 54.8 53.7 55.0 55.8 57.5 58.6 60.5 ### Financial soundness indicators of the banking sector (selected ratios) - Regulatory capital as percent of risk-weighted assets: 16.2 15.5 16.0 16.4 15.6 17.7 18.5 18.5 19.3 20.3 19.4 19.5 - Nonperforming loans in percent of gross loans: 18.6 14.6 11.4 8.3 7.4 5.1 5.9 6.8 6.3 5.8 4.1 3.4 - Return on assets: 0.8 -0.1 0.2 0.9 0.7 1.2 0.5 0.7 1.7 2.6 2.7 2.2 - Return on equity: 5.6 -0.9 1.2 6.9 4.9 8.7 3.7 4.5 13.5 19.3 18.5 15.2 - Customer deposits to total (noninterbank) loans: 110.1 123.0 126.6 131.9 123.1 116.1 108.3 131.0 151.9 147.2 136.5 119.6 ### Annex I: Strengthening the fiscal policy framework — findings and recommendations - Findings: - The Budget and Fiscal Responsibility Law (adopted 2014; amended 2018 and 2023) sets numerical rules including: - a ceiling on public debt at 60 percent of GDP; - a limit on the general government deficit of 3 percent of GDP; - a cap on central government expenditure growth—excluding interest payments, donor-funded projects, and disaster-related spending—set at the rate of GDP growth; - current expenditure growth restricted to the rate of real GDP growth; capital expenditure permitted to grow in line with nominal GDP. - The law has not been consistently observed; penalties for failing to meet fiscal targets are rarely enforced. - The general government budget deficit has surpassed the 3 percent threshold on multiple occasions. - Public debt reached 107.3 percent of GDP in 2020 (78.8 percent of GDP before the pandemic). - Actual spending—particularly current spending—has often exceeded budget plans, while revenues have exceeded plans; fiscal initiatives increasing spending or reducing revenues often lacked offsetting measures. - Recommendations to strengthen the framework: - Reinforce existing numerical rules by aiming for a balanced primary budget. - Clearly and narrowly specify the exceptional circumstances under which numerical targets can be held in abeyance. - Require more accountability to parliament regarding the duration for which targets can be suspended. - Operationalize the independent fiscal council with a strong mandate from parliament and adequate resources to monitor full and consistent observance of the fiscal responsibility law. ### Stochastic simulation analysis on debt sustainability - Methodology and scope: - Uses stochastic simulations based on joint distribution of key macroeconomic variables with annual data from 2006 to 2024. - Projects macro variables over a medium-term horizon with random shocks; debt trajectories derived from government budget constraint and an estimated fiscal reaction function. - Results presented as fan charts showing 5th to 95th percentile ranges. - Key scenarios and quantitative findings: - Assuming a maximum debt threshold of 60 percent of GDP and continuation of current policies, simulations over the next six years starting from the end-2024 debt level indicate a high probability of exceeding the 60 percent threshold in the medium term. - Simulations where fiscal policy successfully targets a balanced primary budget demonstrate a substantial improvement: this strategy would reduce the probability of exceeding the debt target by about 40 percent by the end of the forecast horizon. *Sources: Ministry of Finance; and Fund staff estimates and projections.* ### 6. More stringent provisions governing deviations from the Fiscal Responsibility Law, ### 6. More stringent provisions governing deviations from the Fiscal Responsibility Law, ### Fiscal rules, escape clauses, and enforcement - Recommendation: Introduce well-defined escape clauses to the Fiscal Responsibility Law, including clear limits on their duration. - Rationale: There is a risk of breaching the debt threshold even under a more conservative fiscal stance (i.e., a balanced primary budget) if an external shock is very strong (as during the GFC or the pandemic). - Design principles for escape clauses: - Be guided by transparent criteria. - Be subject to parliamentary approval. - Be complemented by automatic correction mechanisms that trigger fiscal adjustments once thresholds are breached. - Specify a clearly articulated and time-bound path back to compliance. - Enforcement provisions recommended for the Fiscal Responsibility Law: - Mandatory public reporting to parliament. - Establish a strict timeline for corrective action. - Intended effect: Without built-in escape and correction mechanisms, fiscal rules risk losing their intended disciplining effect. ### Independent fiscal council - Recommendation: Establish an independent fiscal council to monitor compliance with the Fiscal Responsibility Law. - Roles and benefits: - Enhance transparency. - Provide impartial macro-fiscal projections. - Monitor adherence to fiscal rules. - Institutional design note: If granted a strong mandate and sufficient resources, such a council could significantly strengthen the credibility and effectiveness of Montenegro’s rule-based fiscal framework. ### Stochastic simulation model: purpose and method - Purpose: Assess the probabilistic distribution of future government debt trajectories and evaluate a “safe level” of government debt given policy and macroeconomic uncertainty. - Sources of uncertainty: - Future fiscal policy decisions. - Macroeconomic uncertainty even under unchanged fiscal policies (economic growth, demographic trends, borrowing costs, external shocks). - Statistical setup: - The multivariate normal distribution of a k-dimensional vector of macroeconomic variables (real GDP growth, the primary budget balance, interest rates, the real effective exchange rate) is written as: x ~ N_k(μ, Σ) with mean vector μ and covariance matrix Σ preserving covariances cov(X_i, X_j). - Simulation mechanics: - Medium-term debt trajectories are derived from a system of simultaneous equations including the debt accumulation equation (government’s intertemporal budget constraint) and a fiscal reaction function (primary balance responds to public debt and macro conditions). - The algorithm generates a large number of random shocks over the forecast period and computes corresponding debt paths for each sequence, enabling a probabilistic assessment of debt sustainability. - Visualization and uncertainty communication: - Fan charts display the distribution of outcomes ranging from the 5th to the 95th percentile, with each color band representing a 5 percent probability interval. - Caution: Reliability depends on robustness of the underlying statistical model. ### Empirical analysis: Impact of “Europe Now” programs on envelope wages and employment (Annex II) — Overview - Programs: Two “Europe Now” programs introduced in 2022 (EN1) and 2024 (EN2) aimed at reducing labor market informality (envelope wages) and increasing employment by lowering the labor-tax wedge. - Data: Monthly anonymized tax administration data used to estimate impacts on wage informality and employment. - Contextual note: Employment and wages increased in 2022 and 2023 following EN1; EN2 was introduced in 2024. Favorable external conditions (tourism rebound and influx of affluent migrants) coincided with these developments. ### Europe Now: Program features (EN1 and EN2) - EN1 (Effective Date: January 2022) - Minimum wage increases: €250/month to €450/month. - Social security contribution cuts: Elimination of the flat rate employee (8.5 percent) and employer (2.3 percent) healthcare contribution on earnings. - Introduction of progressive taxes: Progressive PIT and progressive CIT with specified brackets and rates. - EN2 (Effective Date: October 2024) - Minimum wage increases: €450/month to €600/month for low-skilled workers and to €800/month for high-skilled workers. - Social security contribution cuts: Reduction of contributions for pension and disability insurance from 15 to 10 percent for employees and 5.5 to 0 percent for employers. - Continued progressive PIT and CIT structure. ### Impact on envelope wages — theoretical framework - Theoretical maximum envelope wage: - Employee receives above-the-table official net wage W_a and below-the-table envelope wage W_b. - Scope for tax evasion equals f(W_n) − f(W_a), where W_n is net wage based on productivity in absence of envelope wage; the maximum envelope wage increases in W_n. - Net minimum wage W_m sets a floor to W_a; as minimum wage increases, scope for tax evasion at a given net wage shrinks. - Real-world expectation: - Envelope wage likely plateaus (or declines) as net wage increases due to tax authority attention and concentration of high-paying jobs in larger firms. - Envelope wage is unobservable; changes estimated via the effects of large minimum wage changes. ### Empirical approaches to estimate envelope wage reduction - Approach 1: Difference-in-differences separating groups where envelope wages are more likely versus less likely (examples of groupings): - Private vs. public sector (envelope wage absent in public sector). - Small firms (employees < 20) vs. large firms (employees > 50). - Designated “envelope wage sectors” (60 out of 84 two-digit NACE sectors) vs. others. - Approach 2: Focus on workers around the minimum wage using: - Regression discontinuity around the new minimum wage: compares workers just below vs. just above the new minimum pre-increase to attribute differential wage increases to envelope wage formalization (yields a lower bound). - Analysis of workers earning exactly at the old minimum wage to reveal upper bounds and type-based outcomes. ### Empirical findings: Reduction in envelope wage (EN1 and EN2) - Summary estimates (Annex II. Table 2) — Reduction of Envelope Wage Around the New Minimum Wage: - EN1: - Private vs. public: €38 - Small vs. large: €11 - Envelope wage sectors vs. others: €34 - Regression discontinuity: €25 - EN2: - Private vs. public: €23 - Small vs. large: €24 - Envelope wage sectors vs. others: €73 - Regression discontinuity: €30 - Interpretation: - Estimated average reductions are modest (EN1: €11–38 per month; EN2: €23–73 per month) but can be larger for certain groups. - Difference-in-differences and regression discontinuity approaches likely provide lower-bound estimates because both groups may experience envelope wage reductions. ### Empirical findings: Reduction in envelope wage for minimum wage earners (Annex II. Table 3) - Typology for workers paid at the old minimum wage W_o before the increase: - Type I: Paid at new minimum wage W_n after increase; productivity W_p < W_o. Reduction in envelope wage = 0. - Type II: Paid at new minimum wage W_n after increase; W_p ∈ [W_o, W_n]. Reduction in envelope wage = W_p − W_o (less than W_n − W_o). - Type III: Paid at new minimum wage W_n after increase; W_p > W_n. Reduction in envelope wage = W_n − W_o. - Type IV: Paid above the new minimum wage after increase; W_p > W_n. Reduction in envelope wage = W_p − W_o (largest). - Empirical shares and bounds: - EN1: - Share of Type I: 83%; Type IV: 17%. - Increase in gross wage (Dec 2021 to Jan 2022): €159 for relevant groups. - Reduction in envelope wage: - Type I: €0 - Type II: <€159 - Type III: €159 - Type IV: €217 - EN2: - Share of Type I: 77%; Type IV: 23%. - Increase in gross wage (Sep 2024 to Oct 2024): €138 for relevant groups. - Reduction in envelope wage: - Type I: €0 - Type II: <€138 - Type III: €138 - Type IV: €290 - Note: For workers who moved above the new minimum wage (Type IV), the reduction in envelope wage is largest and these account for 17 percent of old minimum wage earners in EN1 and 23 percent in EN2. ### Impact on employment — sectoral and spillover analysis - Two major non-policy drivers of employment growth 2022–24: - Rebound of tourism (sharp rebound following the pandemic). - Influx of affluent migrants due to the war in Ukraine (affecting IT, professional activities, education, and consumption-linked sectors). - Sectoral contribution: - Five sectors together (accommodation and food service activities; wholesale and retail trade; information and communication; professional activities; education; and real estate activities) constitute 58 percent of total employment growth from 2021 to 2024. - This is a lower-bound estimate because sectoral growth creates spillovers to other sectors. - Spillover-adjusted estimate: - Historical elasticity (2010–19) between total employment and tourism employment: 0.48 with a 95 percent confidence interval of [0.36, 0.61]. - Tourism employment grew by 56.6 percent from 2021 to 2024. - Predicted increase in total employment based on this elasticity: 27.1 percent with a 95% confidence interval of [20.4, 34.5] percent. - Actual total employment increase during this period: 30.9 percent. - Taking the lower bound estimate of 20.4 percent, the tourism rebound between 2021 and 2024 explains at least 66 percent of the observed total employment increase. - Conclusion: Favorable external factors (tourism rebound and migration) explain at least 66 percent of employment growth during 2022–24; Europe Now programs contributed to reducing incentives for envelope wages and had a moderate but sizeable impact on employment, with employment growth concentrated in sectors closely tied to these external conditions. *Italic: Source — IMF staff calculations and analysis as presented in the cited content.* ### 11. The implied employment impact of the Europe Now programs may be moderate, but ### 1mneea2025002-source-pdf - 11. The implied employment impact of the Europe Now programs may be moderate, but ### Employment impact of Europe Now programs - Roughly two thirds of the total employment increase between 2021 and 2024 was driven by tourism and migration. - If the residual employment growth is entirely attributed to the Europe Now programs, the Europe Now programs could account for up to one third of employment growth between 2021 and 2024. - Conclusion: Europe Now programs likely account for a moderate but sizeable share of overall employment growth; quantitative estimates are subject to uncertainties. ### Macro fiscal implications of investing in climate change adaptation infrastructure in Montenegro (Annex III overview) - Model used: IMF's Debt, Investment, Growth, and Natural Disaster (DIGNAD) model to assess vulnerability and benefits of timely public investment in adaptive infrastructure. - Key geographic and exposure points: - Montenegro is mountainous with over 60 percent of land covered by forests. - Tourism contributes approximately 30 percent of GDP and is concentrated along the coast during June to September. - World Bank estimate: Montenegro required to spend on average 1.5–2.3 percent of GDP annually on infrastructure until 2050; of this, 0.6 percentage points is incremental, with required investment front-loaded at 0.9 percent of GDP until 2030. - World Bank estimate: approximately 36 percent of Montenegro’s forested areas are classified as being at ‘very high’ risk of wildfire. - Calibrated illustrative extreme event: a major wildfire disrupting tourism for one month during the summer—estimated immediate output loss ranges between 7 and 8 percent of GDP. ### DIGNAD model structure and distinctions - DIGNAD features: - Integrates damages to public and private capital stocks and temporary productivity losses. - Accounts for reductions in public investment efficiency and deteriorations in sovereign creditworthiness. - Evaluates implications for debt sustainability and benefits of proactive policy responses (climate-resilient infrastructure, fiscal buffers, improved public investment management). - Three analytical blocks: - Private demand: households decide labor supplied; receive income, remittances, government transfers; consume domestic goods and imports. - Private supply: tradable and non-tradable firms choose capital and labor; output depends on total factor productivity which depends on stock of public infrastructure. - Policies: government funds current and capital expenditures via taxes and various debt types; chooses level and type of public investments (standard vs climate-resilient). - Distinction between capital types: - Standard capital: more susceptible to disaster damage; higher depreciation. - Climate-resilient capital: lower depreciation rate and higher rate of return; higher upfront costs but reduces asset destruction and output losses. ### Scenario framework and calibration - Timing and shock: - Government initiates a five-year public infrastructure investment program spanning 2025 to 2029. - Climate-induced natural disaster occurs in 2030. - Disaster calibrated to induce a GDP contraction of 7–8 percent, consistent with a one-month complete disruption of the peak tourism season. - Two stylized fiscal response strategies: - No Borrowing: finance infrastructure through domestic fiscal measures (increased taxation and expenditure rationalization), no additional borrowing. - With Borrowing: rely exclusively on commercial borrowing to fund infrastructure program and the post-disaster fiscal gap. - Three investment variants within each fiscal response: - Scenario 1: Standard Investment — Additional investment of 0.9 percentage points of GDP in standard infrastructure from 2025 to 2029. - Scenario 2: Climate-resilient Investment — Additional investment of 0.9 percentage points of GDP in climate-resilient infrastructure from 2025 to 2029. - Scenario 3: Climate-resilient Investment + public investment efficiency (C-PIMA implemented). - Key calibrated parameters (values shown exactly as calibrated): - Return to standard infrastructure 35.0 - Return to adaptation infrastructure 45.0 - Public investment to GDP ratio 5.7 - Grants to GDP ratio 1.0 - Consumption tax (VAT) rate 21.0 - Labour income tax rate 9.0 - Public domestic debt to GDP ratio 4.0 - Public concessional debt to GDP ratio 10.0 - Public external commercial debt to GDP ratio 46.0 - Remittances to GDP ratio 10.7 - Imports to GDP ratio 68.0 - Real interest rate on public domestic debt 1.2 - Real interest rate on public external commercial debt 2.0 - Depreciation rate of standard public infrastructure 7.5 - Depreciation rate of resilient public infrastructure 3.0 - Public investment efficiency 41.0 - Source for calibration: IMF staff calculations; Ministry of Finance. ### Key simulation results and policy implications - No-Borrowing simulations (stringent fiscal tightening when investment is standard quality): - To close the fiscal gap in 2031, consumption tax revenues must increase by 1.5 percentage points of GDP and income tax by 0.5 percentage points of GDP relative to a scenario investing in climate-resilient infrastructure. - Current public expenditures must fall by 0.5 percentage points of GDP in 2031. - GDP falls by an additional 4 percentage points due to the climate disaster and fiscal tightening when investment is standard quality. - Investing in climate-resilient infrastructure and improving public investment efficiency reduces short-term GDP losses and effectively eliminates long-term scarring effects on GDP. - With-Borrowing simulations: - Macroeconomic GDP trajectory mirrors the no-borrowing case but: - Investing in climate-resilient infrastructure significantly mitigates adverse effects of the climate shock and reduces long-term output scarring. - Enhanced public investment efficiency adds further benefits. - Reliance on borrowing increases public debt by a range of 4 to 6 percentage points of GDP; the higher end associated with standard infrastructure investments. - Figures (model estimates) illustrate impacts on: - Public Infrastructure Investment (Percent of GDP) - Public Adaptation Investment (Percent of GDP) - Public Current Expenditures (Percent of GDP) - Labor Income Tax (Percent of GDP) - Consumption Tax (Percent) - Real GDP (Percent deviation from steady state) - Total Public Debt (Percent of GDP) — with borrowing case - Real GDP (Percent deviation from steady state) — with borrowing case ### Broader climate risk findings and fiscal needs - Q-CRAFT estimates: - Under extreme climate scenarios, long-run output losses of up to 8 percent of GDP and public debt surging to 180 percent of GDP by 2100. - Even moderate scenarios yield significant GDP losses and debt accumulation. - Energy and transition costs: - 72 percent of Montenegro’s energy currently sourced from fossil fuels; heavy reliance on rain-dependent hydroelectric power. - Costs of adapting infrastructure and transitioning to greener energy potentially reaching 2.7 percent of GDP annually. - Policy imperatives: - Build fiscal buffers. - Enhance analytical capacity. - Incorporate long-term climate risk management into fiscal planning. - Address external factors such as the EU’s Carbon Border Adjustment Mechanism. ### Implementation status of past IMF recommendations (Annex IV highlights) - Fiscal policy: - Implement offsetting measures to close fiscal gaps from ‘Europe Now’: Some offsetting measures introduced, but not adequate to cover the loss in revenues. - Replace progressive CIT with flat rate and SME regime: Not implemented; CIT revenue performance strong after progressive regime introduction. - Strengthen fiscal institutions (fiscal council law passed March 2023): Law passed but fiscal council yet to become operational. - Establish robust investment management and PPP frameworks: Progress in line with IMF PIMA TA; C-PIMA recommendations need implementation. - Reform public sector employment and pension system: Stalled due to political constraints. - Review tax expenditures: Authorities in touch with FAD to identify suitable areas to eliminate. - Issue retail government bonds: Authorities plan inaugural issuance by end-2025. - Financial sector: - Gradual unwinding of crisis response measures: Implemented. - Strengthen supervision using Asset Quality Review: Implemented. - Improve AML/CFT framework: Shortcomings from MONEYVAL need addressing. - Develop macroprudential indicators and modeling at CBCG: CBCG collecting DTI, DSTI and LTV; data quality needs improvement; TA from Austrian Central Bank under consideration. - Structural reforms: - Increase female labor force participation: Parental policies generous; authorities can provide better childcare options. - SOE reform and ‘Montenegro Works’: ‘Montenegro Works’ not operational. ### External sector assessment — Current Account (Annex V highlights) - Montenegro’s external position in 2024 assessed as substantially weaker than consistent with fundamentals and desirable policy settings (IMF’s EBA-lite and staff judgment). - Current account developments: - Current account deficit widened from 11.2 percent of GDP in 2023 to 17.1 percent of GDP in 2024. - Tourism plateaued in 2024: foreign tourist arrivals plateaued; overnight stays and tourism receipts declined. - Robust domestic demand drove strong import growth. - Export performance weakened due to declines in electricity, aluminum, and iron and steel exports—linked to underperformance of hydropower plants, maintenance-related outages at the Pljevlja thermal power plant, and closure of the aluminum smelter. - Policy recommendations to address external imbalance: - Maintain fiscal discipline. - Prioritize growth-enhancing capital expenditures. - Create a business climate that diversifies sources of FDI. - Advance structural reforms to boost productivity. *Source: IMF staff estimates; IMF staff calculations; Ministry of Finance.* ### 2. The deterioration in current account is partly a twin deficits problem. The substantial ### 2. The deterioration in current account is partly a twin deficits problem. The substantial ### A. Current account and twin deficits - The substantial increase in the minimum wage under the “Europe Now” and “Europe Now 2” programs, coupled with reductions in healthcare and pension contributions, has weakened Montenegro’s fiscal position and contributed to a surge in domestic demand. - The share of consumption in GDP had been declining before the pandemic; this trend reversed after the pandemic and imports have risen as a percentage of GDP, particularly household consumption goods (food, clothing, appliances, and vehicles), reflecting strong household demand since the launch of “Europe Now” in 2022. - The pattern indicates a twin deficits dynamic: simultaneous deterioration in the fiscal balance and the current account, reinforcing structural saving–investment imbalances. ### B. Financial account and external financing composition (findings) - Net FDI inflows: - Declined from an average of 12.1 percent of GDP during 2020–22 to 6.1 percent in 2023 and 6.4 percent in 2024. - FDI in the real estate sector remained resilient; the share of gross FDI directed toward real estate rose to 51 percent in 2024. - Portfolio investment: - Supported by the issuance of a Eurobond, amounted to 4.3 percent of GDP and financed approximately 25 percent of the current account deficit in 2024. - Other investment: - Primarily transfers from foreign parent banks to domestic subsidiaries, accounted for 42 percent of deficit financing in 2024. - Net errors and omissions were 2.0 percent of GDP in 2024; this declined significantly after IMF technical assistance improved recording of foreign residents’ asset holdings. ### C. Net international investment position (NIIP) - NIIP evolution: - Peaked deterioration to almost -200 percent of GDP in 2020. - Improved as nominal GDP recovered, but resurgence of large current account deficits stalled progress. - NIIP leveled at -104 percent of GDP in 2023 and 2024. - Risk implications: - Persistently large negative NIIP heightens risks of sudden stops in capital flows, increases in sovereign risk premia, and constrained access to international financial markets. ### D. Real exchange rate (REER) developments - Post-pandemic inflation divergence led to a notable appreciation of the REER. - As inflation receded, the pace of REER appreciation slowed. - Compared to peer economies (particularly other Western Balkan countries), Montenegro’s REER appreciation has been relatively moderate, suggesting a potential competitive advantage in regional trade and investment dynamics. ### E. Assessment of external position (EBA-lite model results and interpretation) - Two EBA-lite models were used: a current account (CA) model and a REER model. - CA model results (2024): - Cyclically adjusted current account deficit: 16.7 percent of GDP. - Model-derived multilaterally consistent norm: 1.8 percent of GDP. - CA gap: -14.9 percent of GDP. - Estimated overvaluation of the REER implied by the CA gap: approximately 41.4 percent (based on elasticity). - REER model: - Indicates overvaluation, estimating a misalignment of 2.0 percent. - The REER model is sensitive to assumptions about country fixed effects; for Montenegro a fixed effect was estimated as the average of neighboring countries (Serbia, Albania, Croatia). - Staff judgment: - Neither model is fully satisfactory quantitatively. The CA model is marginally preferred but constrained by limited data; the REER model is highly sensitive to fixed-effect assumptions. - Compared to the CA model estimate in 2023, an improvement in the adjusted CA norm (driven by population growth) and a worsening savings–investment imbalance (mostly driven by the public sector) contributed to a widening REER gap. - Cross-country context: - Montenegro’s unilateral euroization places it among economies (small island states, tourism-dependent countries) that have experienced similar or higher current account deficits. - Montenegro’s current account deficit in 2024 ranks in the lowest decile among a group of 27 comparable countries. - Montenegro’s REER gap is within the range observed for those countries when they had elevated current account deficits. ### F. Reserve adequacy and liquidity buffers - Montenegro relies on reserve holdings (central government deposits and banks’ required and excess reserves) for balance-of-payments needs and as fiscal/liquidity buffers due to unilateral euroization and absence of an independent monetary authority or lender of last resort. - Reserve adequacy evaluated with two metrics: - IMF’s standard metric for fixed exchange rate regimes. - A modified metric that assigns greater weight to bank deposits. - Key figures (Annex VII, 2024, percent of GDP unless noted): - Potential sources of liquidity need (weights in parentheses implied by ARA concept): - Exports 4.4 - Short-term external debt 1.2 - Base money (bank deposits) 5.5 / modified concept 8.2 - Portfolio investment liabilities 6.4 - Target: 17.4 / modified target: 20.1 - Without deposits of euro area banks: 7.4 / modified 8.3 - Available resources: - Gross international reserves 21.8 - Percent of metric: 125% / modified: 108% - Percent of metric, w/o euro area banks: 297% / modified: 264% - Net of bank excess reserves 13.2 - Percent of metric: 76% / modified: 65% - Percent of metric, w/o euro area banks: 179% / modified: 159% - Interpretation: - Under both standard and modified frameworks, reserve coverage exceeds 100 percent. - Coverage is less robust when bank excess reserves are excluded, but banks with Euro Area parent institutions can access liquidity via the European Central Bank through parent banks. - When deposits from euro area parent banks are excluded, reserve adequacy improves significantly and remains within a comfortable range. ### G. Risks and policy responses (selected entries from Risk Assessment Matrix) - Europe Now 2.0: - Likelihood: High. Impact if realized: High. - Impact: Large increases in the minimum wage and elimination of pension contributions would undermine competitiveness and significantly deteriorate the fiscal position. - Policy response: Maintain coherent fiscal policies consistent with debt sustainability. - Fiscal vulnerabilities and higher long-term interest rates: - Likelihood: High. Impact: High. - Impact: Rising public debt and deficits may push up long-term interest rates, risk sovereign bond market disruptions, amplify capital flow volatility, tighten financial conditions, and threaten debt sustainability. External financing needs are high, including large Eurobond rollovers due in 2025 and 2027. - Policy response: Active debt management planning; additional fiscal tightening if borrowing costs rise. - Commodity price volatility: - Likelihood: High. Impact if realized: Medium. - Impact: Montenegro’s inflation is sensitive to international food price increases given large share of imported food in CPI. - Policy response: Targeted and temporary measures to alleviate cost increases of staple products may be considered. - Geopolitical tensions: - Likelihood: High. Impact if realized: High. - Impact: Could trigger commodity price volatility, migration pressures, inflation, and weigh on growth via confidence, investment, tourism, trade, and supply chains. - Policy response: Structural policies to better integrate migrants into the labor force; other measures as appropriate. - Climate change: - Likelihood: Medium. Impact: Medium. - Impact: Montenegro is particularly exposed to wildfires and flooding; wildfires along the coastal strip during high-season summer months could be particularly damaging to the economy. - Policy response: Invest in climate-resilient public infrastructure. - Cyberthreats: - Likelihood: High. Impact: Medium. - Impact: Montenegro has recent history of disruptive cyberattack on government websites. - Policy response: Build resilience and robust supervision of digital infrastructure. *International Monetary Fund staff summary based on the provided Montenegro country report excerpt.* ### Annex VII. Table 1. Montenegro: Baseline Scenario ### Annex VII. Table 1. Montenegro: Baseline Scenario ### Public debt and trajectory - Public debt (percent of GDP) by year: - Actual 2024: 60.8 - 2025: 60.8 - 2026: 61.5 - 2027: 61.7 - 2028: 62.3 - 2029: 63.3 - 2030: 64.9 - 2031: 66.0 - 2032: 67.5 - 2033: 68.9 - 2034: 70.3 - 2035: 71.4 - Change in public debt (percent of GDP) by year: - 2024: 1.2 - 2025: 0.0 - 2026: 0.7 - 2027: 0.3 - 2028: 0.6 - 2029: 1.0 - 2030: 1.7 - 2031: 1.1 - 2032: 1.5 - 2033: 1.4 - 2034: 1.4 - 2035: 1.1 ### Contribution of identified flows to change in public debt - Contribution of identified flows (percent of GDP): - 2024: 0.2 - 2025: -0.2 - 2026: 1.0 - 2027: 0.3 - 2028: 0.6 - 2029: 1.0 - 2030: 1.7 - 2031: 1.1 - 2032: 1.5 - 2033: 1.4 - 2034: 1.4 - 2035: 1.1 - Primary deficit (percent of GDP): - 2024: 0.8 - 2025: 1.7 - 2026: 1.6 - 2027: 1.6 - 2028: 1.4 - 2029: 1.4 - 2030: 1.3 - 2031: 1.4 - 2032: 1.4 - 2033: 1.6 - 2034: 1.6 - 2035: 1.6 - Noninterest revenues (percent of GDP): - 2024: 40.7 - 2025: 39.2 - 2026: 39.3 - 2027: 39.2 - 2028: 39.4 - 2029: 39.5 - 2030: 39.5 - 2031: 39.5 - 2032: 39.6 - 2033: 39.6 - 2034: 39.6 - 2035: 39.6 - Noninterest expenditures (percent of GDP): - 2024: 41.5 - 2025: 40.9 - 2026: 40.9 - 2027: 40.8 - 2028: 40.8 - 2029: 40.9 - 2030: 40.8 - 2031: 40.9 - 2032: 41.0 - 2033: 41.2 - 2034: 41.2 - 2035: 41.2 ### Automatic debt dynamics and components - Automatic debt dynamics (percent of GDP): - 2024: -4.5 - 2025: -3.1 - 2026: -1.6 - 2027: -1.1 - 2028: -0.7 - 2029: -0.7 - 2030: -0.4 - 2031: -0.3 - 2032: 0.1 - 2033: -0.2 - 2034: -0.2 - 2035: -0.4 - Real interest rate and relative inflation (percent) [as presented]: - -2.4 - -1.2 - 0.3 - 0.7 - 1.1 - 1.1 - 1.5 - 1.6 - 2.0 - 1.8 - 1.8 - 1.6 - Real interest rate (percent): - 2024: -2.7 - 2025: -1.4 - 2026: 0.3 - 2027: 0.7 - 2028: 1.2 - 2029: 1.1 - 2030: 1.5 - 2031: 1.6 - 2032: 2.0 - 2033: 1.8 - 2034: 1.8 - 2035: 1.6 - Relative inflation (percent): - 2024: 0.2 - 2025: 0.2 - 2026: 0.0 - 2027: 0.0 - 2028: 0.0 - 2029: 0.0 - 2030: 0.0 - 2031: 0.0 - 2032: 0.0 - 2033: 0.0 - 2034: 0.0 - 2035: 0.0 - Real growth rate (percent): - 2024: -1.8 - 2025: -1.9 - 2026: -1.9 - 2027: -1.8 - 2028: -1.8 - 2029: -1.8 - 2030: -1.8 - 2031: -1.9 - 2032: -1.9 - 2033: -2.0 - 2034: -2.0 - 2035: -2.0 - Real exchange rate: -0.2 (followed by ellipses in source) ### Other identified flows and residuals - Other identified flows (percent of GDP): - 2024: 3.9 - 2025: 1.1 - 2026: 0.9 - 2027: -0.2 - 2028: -0.2 - 2029: 0.3 - 2030: 0.7 - 2031: 0.0 - 2032: 0.0 - 2033: 0.0 - 2034: 0.0 - 2035: 0.0 - Contingent liabilities (percent of GDP): 0.1 in 2024; 0.0 for 2025–2035 - (minus) Interest Revenues (percent of GDP): 0.0 for 2024–2035 - Other transactions (percent of GDP) mirror Other identified flows: - 2024: 3.8 - 2025: 1.1 - 2026: 0.9 - 2027: -0.2 - 2028: -0.2 - 2029: 0.3 - 2030: 0.7 - 2031–2035: 0.0 - Contribution of residual (percent of GDP): - 2024: 1.0 - 2025: 0.2 - 2026: -0.3 - 2027–2035: 0.0 ### Gross financing needs and debt service - Gross financing needs (percent of GDP): - 2024: 7.6 - 2025: 15.3 - 2026: 7.1 - 2027: 18.6 - 2028: 8.3 - 2029: 17.3 - 2030: 12.2 - 2031: 20.6 - 2032: 13.8 - 2033: 16.2 - 2034: 15.9 - 2035: 13.7 - Of which: debt service (percent of GDP): - 2024: 6.7 - 2025: 13.5 - 2026: 5.5 - 2027: 17.1 - 2028: 6.9 - 2029: 15.9 - 2030: 10.8 - 2031: 19.2 - 2032: 12.3 - 2033: 14.7 - 2034: 14.3 - 2035: 12.2 - Debt service by currency: - Local currency (percent of GDP): 6.0, 13.4, 5.3, 17.0, 6.8, 15.8, 10.8, 19.1, 12.3, 14.6, 14.3, 12.1 (2024–2035) - Foreign currency (percent of GDP): 0.8, 0.2, 0.1, 0.1, 0.1, 0.1, 0.1, 0.1, 0.1, 0.1, 0.0, 0.0 (2024–2035) ### Memo indicators - Real GDP growth (percent): 3.2 (2024) and 3.2 for each year 2025–2035 except 2027 onward reporting 3.0 for many years; listed as: - 3.2 3.2 3.2 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 - Inflation (GDP deflator; percent): - 2024: 4.8 - 2025: 5.0 - 2026: 2.6 - 2027: 2.2 - 2028: 2.0 - 2029: 2.2 - 2030: 2.0 - 2031: 2.0 - 2032: 2.0 - 2033: 2.0 - 2034: 2.0 - 2035: 2.0 - Nominal GDP growth (percent): - 8.1, 8.3, 5.9, 5.3, 5.1, 5.2, 5.0, 5.0, 5.0, 5.0, 5.0, 5.0 (2024–2035) - Effective interest rate (percent): - 2024: 0.0 - 2025: 2.5 - 2026: 3.1 - 2027: 3.3 - 2028: 4.0 - 2029: 4.0 - 2030: 4.4 - 2031: 4.5 - 2032: 5.2 - 2033: 4.7 - 2034: 4.8 - 2035: 4.4 ### Key commentary from the Table and Figures - Short table commentary: - "Public debt dropped to 60.8 percent of GDP by 2024 after a 48-point decline post-pandemic, but is expected to rise in 2026 and beyond due to worsening fiscal performance. Aging costs and climate change will increasingly strain public finances." - Medium-term risk assessment commentary (Annex VII. Figure 5): - "The fan chart module signals increased medium-term debt sustainability risk, with public debt projected to rise as a share of GDP and fiscal performance deteriorating. Achieving and maintaining debt below 60% of GDP requires ongoing fiscal consolidation. The GFN module indicates elevated baseline GFNs and rollover risks. Staff suggest diversifying financing sources, developing the retail market, and adopting regular external debt issuances to improve debt management." - Risk module numeric indicators (as presented in source): - Fanchart width (percent of GDP): 447.36.5 - Probability of debt non-stabilizaiton (percent): 0.00.0 - Terminal debt-to-GDP x31.20.7 - Debt fanchart index (DFI): 7.2 - Risk signal: 3/High - Average baseline GFN (percent of GDP): 13.14.5 - Initial Banks' claims on the gen. govt (pct bank assets): 11.13.6 - Chg. In banks' claims in stress (pct banks' assets): 38.813.0 - GFN financeability index (GFI): 21.1 - Risk signal: 4/High - Medium-term index components: Debt fanchart index 7.2; GFN finaceability index 21.1; Final assessment lines indicate "Risk signal: 5/" and "Final assessment: #N/A" in the source. ### Triggered modules and long-term risks (selected messages) - Pensions and demographics: - Pension financing needs and total benefits paid are projected to rise substantially as population ages. Permanent adjustment needed in the pension system to keep pension assets positive for: 30 years 6.7%; 50 years 9.0%; Until 2100 10.8% (presented as "30 years50 yearsUntil 2100 (pp of GDP per year)6.7%9.0%10.8%"). - "Pension payouts now exceed contributions due to higher minimum pensions and lower contribution rates, increasing funding pressure. As the population ages, financial challenges for social security will intensify." - Health: - "Health spending may create long-term fiscal risks for Montenegro. Limited data by age group mean model results should be interpreted with caution." - Climate change: - Adaptation: "Montenegro faces climate risks like flooding, drought, extreme heat, and wildfires, but performs well on the ND-GAIN climate risk index. According to the 2024 World Bank report, adaptation is expected to cost about 0.6 percent of GDP annually through 2050." - Mitigation: "Montenegro's economy is carbon intensive because of its heavy reliance on coal for energy production. Montenegro is committed to reducing greenhouse gas emissions by 55 percent by 2030 and 60 percent by 2035 relative to 1990 levels, and ending it's dependence on coal by 2041." *Source: IMF staff estimates and projections as presented in Annex VII. Table 1 and accompanying figures.* ### Annex VIII. Table 3. Table of Common Indicators Required for Surveillance ### Annex VIII. Table 3. Table of Common Indicators Required for Surveillance ### Common indicators and dissemination details (Montenegro) - Indicators listed in the table: - Exchange Rates - International Reserve Assets and Reserve Liabilities of the Monetary Authorities - Reserve/Base Money - Broad Money - Central Bank Balance Sheet - Consolidated Balance Sheet of the Banking System - Interest Rates - Consumer Price Index - Revenue, Expenditure, Balance and Composition of Financing ‒ General Government - Revenue, Expenditure, Balance and Composition of Financing ‒ Central Government - International Investment Position - Stocks of Central Government and Central Government‑Guaranteed Debt - External Current Account Balance - Exports and Imports of Goods and Services - GDP/GNP - Gross External Debt - Representative timing and frequency entries shown in the table (preserved verbatim from source): - DM...7D - Sep-25Oct-25MonthlyMonthlyMM1M1M - Sep-25Oct-25MonthlyMonthlyMM2M1M - Sep-25Oct-25MonthlyMonthlyMM1Q1M - Sep-25Oct-25MonthlyMonthlyMM2M1M - Sep-25Oct-25MonthlyMonthlyMM1Q1M - Sep-25Oct-25MonthlyMonthlyMM...1M - Sep-25Oct-25MonthlyMonthlyMM2M15D - 2024Jun-25AnnualAnnualAA3Q8M - Aug-25Oct-25MonthlyMonthlyQM1Q30D - Aug-25Oct-25MonthlyMonthlyQQ2Q50D - 2025Q2Aug-25QuarterlyQuarterlyQQ1Q1Q - 2025Q2Aug-25QuarterlyQuarterlyMM12W27D - 2025Q2Sep-25QuarterlyQuarterlyQQ1Q1Q - 2025Q2Sep-25QuarterlyQuarterlyQQ2Q2Q - 2025Q2Sep-25QuarterlyQuarterlyAQ3Q1Q - Frequency and timeliness code definitions as provided: - (“D”) daily - (“W”) weekly or with a lag of no more than one week after the reference date - (“M”) monthly or with lag of no more than one month after the reference date - (“Q”) quarterly or with lag of no more than one quarter after the reference date - (“A”) annual - ("SA") semiannual - ("I") irregular - ("NA") not available or not applicable - ("NLT") not later than - Notes included in the table text: - Footnote 1: Includes reserve assets pledged or otherwise encumbered, as well as net derivative positions. - Footnote 2: Both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds. - Footnote 3: Foreign, domestic bank, and domestic nonbank financing. - Footnote 4: The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments. - Footnote 5: Including currency and maturity composition. - Footnote 6: Frequency and timeliness definitions (see codes above). - Footnote 7: Encouraged frequency of data and timeliness of reporting under the e‑GDDS and required frequency of data and timeliness of reporting under the SDDS and SDDS Plus. Any flexibility options or transition plans used under the SDDS or SDDS Plus are not reflected. - Footnote 8: Based on the information from the Summary of Observance for SDDS and SDDS Plus participants, and the Summary of Dissemination Practices for e‑GDDS participants, available from the IMF Dissemination Standards Bulletin Board (https://dsbb.imf.org/). For those countries that do not participate in the Data Standards Initiatives, as well as those that do have a National Data Summary Page, the entries are shown as "..." ### Montenegro — Fund relations and financial positions (as of September 30, 2025) - Membership Status: - Joined January 18, 2007; Article VIII. - General Resources Account (SDR Million and percent of Quota): - Quota 60.50 100.00 - Fund Holdings of Currency 45.65 75.45 - Reserve Tranche Position 14.85 24.55 - SDR Department (SDR Million and percent allocation): - Net cumulative allocation 83.81 100.00 - Holdings 69.15 82.51 - Outstanding Purchases and Loans: - Emergency Assistance 45.38 75.00 - Latest Financial Arrangements: - RFI June 24, 2020 June 26, 2020 60.5 60.5 - Projected Obligations to Fund (In millions of SDR) — forthcoming by year: - Header years: 2025 2026 2027 2028 2029 - Principal (no figures shown in source for principal) - Charges/Interest: 0.11 0.41 0.41 0.41 - Total: 0.11 0.41 0.53 0.41 0.41 - Exchange rate arrangement and related legal points (verbatim excerpts where present): - The de jure and de facto exchange rate arrangements are no separate legal tender. - Montenegro unilaterally adopted the euro, which is the legal tender in Montenegro. - Montenegro is not part of the euro area, and the CBCG is not part of the European System of Central Banks - Montenegro has accepted the obligations under Article VIII, Sections 2, 3, and 4 of the IMF’s Articles of Agreement. - Montenegro maintains an exchange system free of multiple currency practices and of restrictions on payments and transfers for current international transactions, except for restrictions in place for security reasons which have been notified to the Fund pursuant to Executive Board Decision No. 144(52/51). - Latest Article IV Consultation: - May 1, 2024 (IMF Country Report No. 24/101). - FSAP participation: - Financial Sector Assessment Program initiated in August 2015, concluded during the 2015 Article IV consultation. Executive Board discussed the Financial System Stability Assessment in January 2016. ### Recent technical assistance, missions, and resident representation - Resident Representative: - Mr. Sebastian Sosa is the Regional Resident Representative for the Western Balkans. - Selected recent technical assistance and missions (department — timing — purpose), preserved as listed: - FAD May 2025 C-PIMA - FAD May 2025 Tax policy microsimulation - FAD Multiple missions 2025 Fiscal risks - FAD October 2024 PIMA follow-up - FAD Multiple missions 2024-25 Revenue administration - FAD 2023 Legal review for establishing a fiscal council - FAD Multiple missions 2022-25 SOE risk analysis and oversight - FAD 2021 PIMA - FAD 2021 Tax analysis and microsimulation modelling - LEG Multiple missions 2021-23 Draft amendments to strengthen the central bank law - MCM September-October 2025 Modernizing central bank communications - MCM May 2025 Stress testing central bank balance sheet - MCM September 2024 Debt portfolio advanced risk management framework and techniques - MCM April 2024 Interest rate supervision (IRRBB) workshop - MCM May 2023 FX risk management - MCM February 2022 Medium-term debt management strategy (MTDS) follow-up - STA July-August 2024 External sector statistics - STA April-May 2021 Balance of payments statistics - Additional note: - In addition, technical assistance was available through regional advisors covering public financial management and revenue administration. *Annex VIII. Table 3. Table of Common Indicators Required for Surveillance (As of October 24, 2025) — Montenegro* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1mneea2025002-source-pdf.pdf_