Montenegro: Staff Concluding Statement of the 2025 Article IV Mission
IMF News, September 26, 2025
Source details
- Canonical URL
- Montenegro: Staff Concluding Statement of the 2025 Article IV Mission
Other formats
Bibliographic details
- Published: September 26, 2025
Mission
- An International Monetary Fund (IMF) mission, led by Srikant Seshadri, comprising Serhan Cevik, Amit Kara, and Jiaxiong Yao, visited Podgorica during September 15-26.
- The mission met with President Jakov Milatović, Minister of Finance Novica Vukovic, Central Bank Governor Irena Radovic, the Prime Minister’s office, Members of Parliament, government officials, private and financial sector representatives, academia, and the diplomatic community.
- The authorities have consented to the publication of this statement. The views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
- Based on these preliminary findings, staff will prepare a report that, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.
Recent developments and outlook
- Post-pandemic recovery and recent growth
- The economy expanded by an average of some 9 percent during 2021–2023.
- Economic growth moderated to 3.2 percent in 2024.
- Latest data suggests growth is lingering at 3.2 percent in the first half of 2025.
- The economy is assessed to have converged to its productive potential.
- Inflation
- Headline inflation peaked at 13 percent in 2022, declined to 1 percent by September 2024, and rose to 4.6 percent as of August 2025.
- Core inflation (excluding food and energy) was 3.7 percent as of August 2025.
- Headline inflation is expected to remain elevated in 2025 with a monthly average of 4 percent, easing toward 2 percent over the medium-term.
- Growth projections
- Baseline forecast: economic growth projected at 3.2 percent in 2025.
- Growth in 2026-30 is projected to stay at similar levels, matching the economy’s current potential growth rate.
- External sector
- The current account deficit is expected to widen sharply to around 18 percent of GDP in 2025.
- Assuming electricity exports pick up from 2026 onwards, the current account deficit is projected to partially moderate toward 15 percent of GDP over the medium-term (higher than the recent average of 12.6 percent of GDP).
- Current account deficits require commensurate capital inflows to be fully financed; higher foreign direct investment (FDI) is needed to grow productive capacity without creating more debt.
Fiscal policy
- Recent and near-term fiscal trajectory
- General government fiscal deficit projected to rise from 2.9 percent of GDP in 2024 to 3.5-3.7 percent of GDP in 2025.
- Baseline forecast: without fresh measures, fiscal deficit continues rising gradually, exceeding 4 percent of GDP by 2030.
- Public debt-to-GDP ratio projected to rise gradually to around 65 percent of GDP by 2030.
- Sources of pressure
- Long-term social expenditures (healthcare and pensions) pressured by population aging.
- Increased military expenditure commitments.
- Drop in social security contributions since the passage of “Europe Now 2.0” projected at 1.6 percent of GDP.
- Fiscal rule and eurozone accession
- Montenegro’s fiscal responsibility law requires deficits not to exceed 3 percent of GDP, and public debt not to exceed 60 percent of GDP.
- Aligning fiscal position with the law is advised and consistent with aspirations to join the eurozone following targeted accession to the EU in 2028.
- Policy recommendation: target a balanced primary budget
- Near-term measures suggested:
- Constrain the growth rate of the public wage bill.
- Carefully eliminate unproductive tax exemptions.
- Save expected revenue gains from granting concessions to modernize and operate the country’s airports.
- Longer-term resource need:
- By 2035, Montenegro will need 5-6 percent of GDP in additional resources to meet spending pressures from population aging, defense-related commitments, and climate change.
- Structural fiscal reforms recommended to raise additional resources:
- Civil service reforms, including a comprehensive review of its size and wage structure.
- More strongly link the retirement age to life expectancy and conduct a careful review of early retirement options.
- Increase efficiency of healthcare expenditures through improved drug procurement and prescription processes; explore cost-savings by merging healthcare facilities where feasible.
- Better target social benefits to the needy through enhanced means-testing.
- Strengthen public investment management through a well-defined pipeline of projects prioritized by economic and social returns.
- Fiscal governance improvements
- Amend the fiscal responsibility law to clearly and narrowly define highly exceptional circumstances for temporary suspension and include well-specified timelines for corrective actions.
- Operationalize the independent fiscal council by finalizing its members promptly to improve monitoring, provide transparent advice, and give early warnings if fiscal outcomes go off-track.
Climate change and related fiscal implications
- Emissions and energy transition commitments
- Montenegro committed to reducing greenhouse gas emissions by 55 percent by 2030 and 60 percent by 2035, relative to 1990 levels.
- Elimination of coal-based power generation by 2041.
- National carbon price expected to rise to EU levels; convergence timeline still under consideration and likely to result in higher domestic electricity costs eventually.
- Climate risks and adaptation needs
- High exposure to droughts, wildfires, and floods.
- Population growth in the capital and coastal regions intensifies pressures on water resources.
- Adapting to these risks will require investment in climate-resilient infrastructure.
Financial sector
- Overall health
- Banking sector remains broadly healthy with strong capital, liquidity, and asset quality indicators.
- Bank lending to the private sector expanded rapidly and real estate prices have surged, particularly over the last two years.
- Supervisory response and risks
- Central Bank of Montenegro (CBCG) raised bank capital levels as a precautionary measure.
- CBCG should continue to monitor for early signs of stress, particularly in the cash loan and real estate segments, and maintain strong supervisory capacity and enforcement in anti-money laundering.
- Montenegro’s integration into SEPA and TIPS Clone welcomed for lowering transaction costs and strengthening financial integration.
- Development Bank of Montenegro (RBCG)
- Recommendation: RBCG should keep focus on its historical mandate of enhancing access to credit in underserved sectors and regions.
- Urgent caution advised regarding proposed expansion of RBCG activities (such as deposit taking and participating in the payments system) to avoid potential fiscal and financial stability risks.
- Central bank governance and capacity
- CBCG must remain operationally independent and appropriately staffed to fulfill responsibilities including banking regulation and supervision, macroprudential policies, contingency planning, and anti-money laundering.
- As Montenegro joins the eurozone, CBCG will assume responsibilities relating to monetary policy, requiring operational independence and specialized staff.
- Urge that vacant senior positions be filled at the earliest, in accordance with central bank law.
Structural policies
- Diversification and resilience
- Broaden tourism offerings (eco-friendly and adventure segments) and make the country more attractive for “digital nomads” to address widening external imbalances.
- Reduce overall economic reliance on tourism by diversifying into renewable energy and creating an attractive and predictable business environment for SMEs and foreign direct investors.
- Rebalance growth from consumption-driven toward investment; increase investment in physical and digital infrastructure.
- Workforce adaptation to technological innovations needed to attract more FDI.
- Current FDI concentration in real estate and construction underscores need to attract investment in other sectors.
- Economic integration with the EU can increase and diversify FDI if accompanied by structural reforms.
- Labor market and productivity
- Re-establish tight link between productivity growth and wage growth.
- Europe Now programs formalized “envelope wages” and are estimated to have generated up to one-third of the formal employment gains between 2021-2024.
- Reduction in “envelope wages” increased access to consumer credit and improved financial inclusion.
- Importance of ensuring future wage growth is matched by productivity growth to avoid undermining competitiveness and triggering wage-price spirals.
- Employers concerned that material changes to working hours could further weaken the link between wages and productivity and raise costs.
Statistical data
- Tourism data compilation and balance-of-payments
- CBCG calculates tourism revenues for balance-of-payments using methods fully consistent with IMF’s BPM6 statistical methodology, transforming underlying primary data from agencies such as the Ministry of Tourism, MONSTAT, and local tourism offices.
- Recent developments call for more granular data and detailed methods to accurately discern tourists from migrants and their respective expenditures.
- Improvements will take time and coordination; relevant agencies urged to prioritize implementing these changes and to eventually take charge of producing tourism data.
- In the meantime, publication of detailed balance-of-payments data should be resumed.
Closing
- The IMF team thanks the authorities and other counterparts for their hospitality and constructive discussions.
Source: IMF Staff Concluding Statement of the 2025 Article IV Mission to Montenegro (September 26, 2025).