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The Glass Is Half-full

The largest ever drop in output in the Western Balkans is obviously bad news. Yet the readiness of foreign investors to continue investing and believing in the Montenegrin economy is the light at the end of the tunnel.

The COVID-19 pandemic has reversed initial positive economic growth expectations and Montenegrin output is expected to have declined by 14.3% in 2020. According to projections, the real GDP growth rate in 2020 will be negative (-14.3%) and will hit all segments of the economy. With a vaccine still not in sight, it seems that 2021 will be a year of very slow rebounds and the economic future has never seemed more uncertain than it does now.

As the researchers of the Vienna Institute for International Economic Studies (wiiw) point out, the COVID-19 pandemic has been exacting a heavy toll on the Montenegrin economy, largely because of the country’s reliance on its tourism sector. Indeed, the strong second wave of the pandemic has resulted in the worst tourism season on record. When tourism failed, it had serious repercussions for employment and private consumption. Foreign direct investment is also in decline.

The latest World Bank report suggests that, due to this crisis, already elevated public debt will soar to a new high, requiring strong expertise from the new government, particularly with regard to fiscal and debt management. If the pandemic becomes subdued by the summer of 2021, the economy is forecast to grow strongly during that year, but it will be 2022 before the full losses in GDP will be recovered, the World Bank report concludes.

The new Montenegrin government will need to take measures to enhance human capital, build stronger institutions and strengthen the rule of law. The pandemic just made these tasks more visible and urgent

In this grim situation, it is still good to know that the community of foreign investors already operating in Montenegro do not intend to slowdown or abandon their investments. It could be said without a doubt that foreign investors believe that the Montenegrin economy is attractive and has strong growth potential.

Yet, along with the challenges created by the health crisis, the new Government will be faced by some other demands that were not fulfilled during the previous period and are crucial. Among them are ensuring the rule of law and a predictable business environment, which implies the transparency of all activities of the administration, reducing corruption and strengthening control over conflicts of interest.

This list also includes improvements to the judicial system, which needs to become much more efficient, and combatting the grey economy. On top of all that is digital transformation, which – as practise to date suggests – has plenty of room for improvement, starting with eGovernment.

In short, the new government has accepted to shoulder a heavy burden. There has probably been no Montenegrin government in recent history that has faced a more complex situation, much more intricate and multifarious than was the case with the global financial crisis. However, steps leading to an economic rebound are visible and are no different than before the crisis. The COVID-19 pandemic merely exposed incomplete tasks.

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