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Darko Radunović, Montenegrin Finance Minister

We’ll Have a Stable Growth Path

If we compare the current situation to the one less than a year ago, we can state unreservedly that the overall macro-fiscal situation has improved significantly and that we have a stable growth path for the coming period. This is not only our assessment but also that of the IMF and the World Bank

The government is determined in its intention to work, with other social structures and with the support of all those who see a partner in Montenegro, to present and complete the process of reforming our society, says Darko Radunović, Minister of Finance in the Government of Montenegro.Darko Radunović

How do you assess the overall macroeconomic situation at this time?Darko Radunović

Based on available macroeconomic indicators, I can say with satisfaction that the Montenegrin economy achieved results in the first half of the year that is significantly above those planned. Specifically, growth was recorded in employment (3.5%) and earnings (2.3% -ARS), while goods exports and retail sales also increased.

Moreover, the latest official data on GDP growth shows that in the second quarter we achieved a real economic growth rate of 5.1%, which elevated our country to the fifth position in terms of growth rates in Europe.

At the same time, the real growth rate in the first half of this year was 4.2%, which is also among the best in Europe, and I can state unreservedly that we expect this growth trend to continue until the end of the year, when we expect to achieve a growth rate of four per cent of GDP.

The greatest impact on growth was caused by the personal consumption of households and the final consumption of the state. Furthermore, we also had record results in tourism this year, and there are realistic expectations that by the end of the year we will exceed the projections set when we started implementing fiscal consolidation measures.

What effect has been achieved by fiscal stabilisation measures implemented to date?

Data for the first nine months of 2017 show that realised budget revenues amounted to €1,116.1 million and were higher in relation to the plan and compared to the comparative period of 2016 by €1.3 million, or €32.9 million.

Likewise, budget expenditures were €100 million lower than planned, or 7.6%, primarily due to the lower realisation of the capital budget, and during those nine months amounted to €1,218.8 million.

As a result of these movements, we realised a budget deficit of €102.6 million, the largest share of which, i.e. 98.5% or €101.1 million, related to capital expenditures, while current expenditures were financed from source revenues, which is the goal of the Montenegrin Government’s fiscal policy.

How dependent is Montenegro on the expert technical assistance of international organisations, such as the IMF and the World Bank, when it comes to formulating the best fiscal stabilisation policies?

The Government of Montenegro independently manages economic policy and in that sense, it autonomously makes decisions and is responsible for their implementation.

On the other hand, we have established long-term cooperation with all relevant international financial institutions, first and foremost the IMF and the World Bank, which have the most complete databases, state-of-the-art working methodologies and techniques, experts in various areas of management and, perhaps most significantly, experience of a global character.

These are significant resources that are particularly valuable in phases of devising development models through reforms or creating a mid-term framework for remedying the vulnerability of the fiscal system, as was the case with us.

What are your estimates like when it comes to the effects of savings measures on the growth of the social product? Will you be able to maintain the current high rate of GDP growth in the next year?

Considering the movements of the main growth drivers, primarily the construction sector, as an indicator of investment activity, with estimated gross investment of over €1.1 billion, as well as the tourism sector, with the estimated effects of the tourist season standing at around €950 million, it is essential to exert additional efforts in order to achieve those rates again in 2018.

Bearing all of this in mind, we have projected an average growth rate of 2.8% for the 2018-2020 period.

I’m convinced that we have enough capacity, determination and strength to achieve our goals and the dynamics of our growth and development, through dedicated work.

How much do you plan to borrow on the financial market and how will that money be used?

The proposal of the Budget Law for 2018 envisages borrowing in the amount of up to €295 million, €105 million of which is for the repayment of debts and obligations from the previous period and for the financing of the capital budget, while €190 million is from EXIM Bank for the construction of the highway.

These figures indicate that demand for borrowing on the domestic and foreign markets has reduced significantly compared to previous years, given that indebtedness in 2016 amounted to €655.4 million and in 2017, according to the budget plan, totals €455 million.
We also expect to gain the financial support of €80 million in the form of the World Bank’s PBG-Policy Guarantee, with the borrowed funds to be used exclusively for debt repayment.

How would you estimate mid-term debt risks that are above optimal, in conditions where growth in interest rates is expected on the world market?

At the end of the third quarter of 2017, Montenegro’s public debt amounted to 2,633.25 million euros, and by year’s end, according to projections, that figure will reach the amount of 2,779.79 million euros. According to the fiscal consolidation plan that we’ve placed in the focus of fiscal policy for the medium term, we expect the movement of debt to begin to fall in 2019, and for the level of public debt to fall below 60% of GDP in 2022/2023.

In the coming period, from 2019 to 2021, we are awaited by the repayment of obligations on the basis of Eurobonds, and we are now already considering options that would represent the best model for settling these obligations. In this sense, one option is to reissue bonds through which the existing ones will be repaid, in order not to come to an increase in the debt, but rather to replace the previous new bond while considering the possibility of a longer maturity period for their repayment. Another option is the issuance of a new bond that would significantly reduce the number of existing bonds and reduce liabilities in the medium-term period.

The price of bonds depends not only on the current economic situation of Montenegro but also on macroeconomic developments in the world. In this part, there are announcements of interest rate increases by the FAD and the ECB, but a question arises as to how much they will influence the growth of interest rates. According to some announcements, the market is expected to absorb a rise in prices when it comes to dollar bonds, while for euro bonds we will see the effect on the rise in interest rates.

How satisfied are you with the revenue side of the budget and which measures do you plan for improving tax revenues?

As I already mentioned, data on revenues for the January-October period show that collection in comparison with the comparative period last year increased by 4.2%, and in relation to the planned level by about one per cent, which is a reason for us to be completely satisfied.

In addition, from 1st January 2018, the measures established by the Fiscal Strategy of Montenegro 2017-2020, which relate to increasing the standard VAT rate, introducing excise on carbonated water with added sugar, introducing excise on coal and fiscalisation of cash registers, which – with the intensification of activities to reduce the level of the grey economy and tax receivables, will achieve a significant increase in budget revenues.

Which sector of companies can have expectations when it comes to changes in the tax system, in addition to the already adopted changes in VAT rates?

The programme of fiscal consolidation of the projected changes in the tax system refers to increasing the VAT rate from 1st January by two percentage points and the harmonisation of excise calendars for the mentioned excise products that do not increase the costs for the economy, and on the other hand are not existential products for citizens and have a harmful impact on health and the environment.
There won’t be increases in other rates in the tax system, but changes can be expected with the aim of simplifying the tax procedure, reducing the taxpayer’s expenses in terms of charging and paying taxes or shortening the time needed for administering taxes in companies.

In the period ahead, the Government will consider the possibility of reducing the number of social security contributions, as this category is the only one recognised as the one that exerts a higher burden on employers.

On the expenditure side, there has already been a reduction in public sector wages. In the coming period, are you planning other measures to reduce expenditures?

Budget expenditure reductions will be achieved with appropriate measures of rationalisation and savings. During their conception, care was taken to ensure the establishment of measures that would have the least negative impact on economic growth and living standards. Through two recovery packages, in December 2016 and July 2017, a correction came on the expenditure side for certain positions, which – along with measures on the revenue side – resulted in fiscal consolidation.

Credit rating agencies Standard & Poor’s and Moodys have changed the outlook for our country from “negative” to “stable”, which is yet more confirmation that we have chosen savings measures well and implemented them.

How will the reduction of expenditures be reflected in the level of capital investments?

In the previous period, there was a significant increase in expenditures for capital projects. Here I’m primarily referring to the construction of the priority section of the Bar-Boljare highway, but significant investments are also being invested in other road infrastructure, then projects that should encourage the development of tourism in the north of the country, projects worth tens of millions of euros, as well as projects intended for the needs of education, social expenses, culture…

The capital budget, without the motorway, ranges between 75-80 million euros annually, while in individual years, when the proceeds from loans and donations are more significant, this amount is considerably higher.

Upon the completion of works on the highway, it is planned to increase these expenditures, in order to strengthen the development component of the budget and thereby provide a greater contribution to the overall development of Montenegro.

When will the current large infrastructure projects start to yield profits and how much is it possible to count on these revenues in future calculations of the revenue side of the budget?

The project for the construction of the Bar-Boljare highway will have its fully expected effects once it is completed in its entirety. In that sense, it is also necessary to observe an increase in budget revenues, through the payment of tolls. It is expected that the priority section of the highway, Uvač-Mateševo, is expected to be completed in 2019.

The project to connect the electricity systems of Montenegro and Italy via an undersea cable will be completed in 2019 and will position us as an important electricity hub in the region.

The expected multiplicative effects of these projects will give an additional impetus to economic activity and along with with it the growth of public revenues and the strengthening of macroeconomic stability.

What do you consider the greatest challenges to macroeconomic policy in the coming year?

The projected macroeconomic framework and our plans can jeopardise the slowdown in the dynamics of key investment projects, which would make our fiscal projections unrealistic in the medium term.

On the other hand, inconsistency in the implementation of fiscal consolidation measures, i.e. the failure to fulfil the planned expectations would have a negative impact on the budget deficit and on the control of public debt, which would result in a new re-examination of our financial capacities. I believe the Government is determined in its intentions to present and complete the reform process of our society.


The Government of Montenegro independently manages economic policy and in that sense, it autonomously makes decisions and is responsible for their implementation


In the coming period, the management of the expenditure side will be aimed at reducing the relative share of discretionary spending in GDP


The project to connect the electricity systems of Montenegro and Italy via an undersea cable will be completed in 2019 and will position us as an important electricity hub in the region