Economic Policy of Montenegro for 2010

Economic Policy of Montenegro for 2010




FOR 2010

Podgorica, November 2009.



1. Economic Policy Environment and Framework

2. Initial assumptions

3. Threats and Risks

4. Chances and more favorable circumstances

5. Development concept basis

6. Economic Policy Objectives






1.1. Restructuring and privatization

1.2. Development of Entrepreneurship and Small and Medium-Sized Enterprises

1.3. Network Industries

1.3.1. Energy

1.3.2. Transport and Telecommunications

1.5. Environmental protection and improvement

1.6. Regional Development

1.7. Information Society Development

1.8. Statistics


2.1. Banking Sector

2.2. Non-banking Sector


3.1. Employment and Labor Market

3.2. Social Policy

3.3. Earnings and Pensions Policy



1.Processing Industry and Mining


3.Agriculture, Forestry and Water Resources Management

4.Construction and Housing and Communal Sector


VII – Social Activities


1. Economic Policy Environment and Framework

Strong impacts of economic and financial crisis on Montenegrin economy in 2009 creating difficulties in maintaining the liquidity in the banking sector, subsequently overflowing into the real sector accompanied by all complexities of multiple connections in a number of debtor - creditor relations, causing the weakening of economic activity downgrading basic macro - economic indicators. The crises trend indicating its impact during the year had shown some late effects against developed economies and some systems in the region. In the light of the above, it was assessed that the first half of 2010 will depend on the recession processes, while beneficial effects of implemented economic policy measures will be felt in the second half of the year, restoring economic activity and creating conditions for the establishment of the real economic growth. Narrowed budgetary framework for 2010, with cost - saving and rationalization measures, will represent the objective limit to stronger budgetary support aimed at development. One of positive features is the preservation of fiscal policy principles and orientation, focusing on creation of conditions for reducing business barriers to entrepreneurial initiatives and new investments, aimed at strengthening aggregate demand elements of the commercial and households sector. Credit support, particularly in the sector of small and medium-sized enterprises, will assist in improving special measures which on the other hand will strengthen the environment and safeguarding measures for investments in order to direct banking business policies to programmes and projects in the economy. In the light of the above, it should be emphasized the importance of operational credit lines with the European Investment Bank and the German Development Bank and the realization of these funds through the implementation of programmes and projects.

Realization of capital infrastructure construction projects, featured by the limited capital budget framework, will be directed to the private - public partnership projects and other joint – venture modalities.

Possible arrangements with international financial institutions for the purpose of stabilizing public finance, will establish new proportions and parameters representing significant element of the overall macro-economic framework in 2010.

2. Initial assumptions

The initial assumption framework for the development of the Economic Policy for 2010, consists of commitments set forth in strategic development documents. The Economic Policy of Montenegro is in compliance with the commitments and objective set forth in the following documents:

- Economic and Fiscal Programme of Montenegro 2009 - 2012;

- National Programme for Integration of Montenegro into the EU 2008-2012;

- Spatial plan of Montenegro up to 2020;

- National Sustainable Development Strategy;

- Strategy for the Development of Information Society up to 2013;

- Strategy for the Development of Small and Medium – Sized Enterprises 2007-2010;

- Sectoral Development Strategy.

Strategic framework targeting development in 2010 will be completed by developing the document "Montenegro in the XXI century – in era of competitiveness “and the National Development Plan as well as the implementation document, which will create conditions for defining long-term development vision of Montenegro. Economic policy for 2010 is based on:

- Achieved negative effect and impacts of the crisis stopping the economic growth along with the fall in the economic activity, reduced liquidity and inadequate credit support to development plans and projects and the analysis of aforementioned problems in 2010;

- Preserved transformation process of economic and social system in accordance with the economy market orientation, openness and strengthening of economic freedoms;

- Sound dynamics of meeting the obligations from the Interim Agreement on trade and related matters and progress in joining the EU, with expectations of a positive attitude towards the Questionnaire for obtaining positive opinion of the European Commission on the application for the EU membership;

- Realized and anticipated structural changes of the economy to strengthen the private sector, private entrepreneurial initiative and businesses within the small and medium - sized enterprises in the sphere of social activity, along with finding optimum and possible solutions for the functioning of large systems in changed conditions;

- Possibility to activate respectable resources in the North of Montenegro, being a precondition for the implementation of the policy for balanced regional development, along with defining state policy to support balanced regional development through the Regional Development Strategy of Montenegro and the Law on Regional Development of Montenegro.;

- Strengthening the role of knowledge and application of IT achievements spurring development and modern technology integration.

3. Threats and Risks

It is assessed that certain effects of the crises will transfer to 2010 with reduced intensity, with extensive effects on the overall economic environment and growth performance, reducing external negative recession impact, creating conditions for the stabilization of economic trends and restoration of economic activity. In such circumstances, the objective threats and risks will consist of:

- Prolonged effect of the crises and subsequently, the influence of narrow general material framework on the living standard;

- Cautious activity of the banks in terms of investments security as well as the limit of credit support to the economy;

- Insufficient level of aggregate demand being the limit of the development cycle;

- Limited capital budget framework for stronger support to investments;

- Optimization of the number of employees in large companies and systems with uncertain perspective influencing unemployment growth;

- Necessary funds for the revival of activity in the real sector.

4. Chances and more favorable circumstances

In the process of defining commitments aimed at stabilizing general conditions and creation of assumptions for certain real growths being used as the basis for growth dynamics in the forthcoming years, some circumstances in broader context were taken into account which will positively direct the overall process. In the light of the above, it is expected the following:

- Decrease in impact of external factors created by the economic and financial crises;

- Strengthening possibilities and preferences to travelling in situation of finalized recession process, impacting the strengthening of the foreign tourist demand;

- Stability with respect to the level of inflation relieved from inflationary expectations;

- More favorable conditions for possible arrangements for the financial support of international financial institutions;

- Support and positive attitude to progress in the process of joining the EU.

5. Development concept basis

The concept of the Economic Policy of Montenegro for 2010 is aimed at stabilizing the general conditions in reproductive trends and raising the level of economic activity, which should provide for the real economic growth of 0.5%. One of the features of the development scenario, regardless its implementation in a narrow framework, assumes fiscal policy orientation focused on supporting entrepreneurship in the sector of small and medium – sized businesses, and provision of special incentive measures through the banking sector for the realization of profitable projects providing increased sales, volume of services, production and new employment. Construction works of the highway, road Risan-Zabljak, regional water supply system and attracting potential investors for the realization of projects in the energy sector, tourism, etc., as well as the realization of local infrastructure - related projects within the capital budget limits along with the use of loans from international financial institutions, aimed at maintaining the investment interest in this area, creating conditions for more intensive investment activity in the forthcoming years. Net foreign direct investments are projected at the level of about 400 million €.

Provision of liquidity of the system, represents the top priority in the process of restoring economic activity. Incentives to credit activities of banks and measures aimed at reprogramming outstanding liabilities on the basis of loans in the economy and households sector, will create conditions for aggregate demand strengthening. In the light of the above, inflation in the absence of inflationary expectations, is projected at the annual level of 2.0%. Support to the programmes for the strengthening of competitiveness and export, should create conditions for gradual recovery of volume and structure of economic relations with abroad, providing positive effects to relations within the current account balance.

In some enterprises will be resolved the problem of employees proclaimed redundant, slowing the employment growth rate trend and generating the increase in unemployment rate.

Strategic orientation is focused on continuation of the process of joining the EU and the Euro-Atlantic integration. Consistent application of obligations set forth in the Interim Agreement on Trade and Trade - related Matters and the National Programme for Integration of Montenegro into the EU, with the cooperation within the framework of joint working bodies with the EU, will provide the improvement of the level and quality system solutions compatibility with the EU standards. Expected positive attitude regarding the Questionnaire for obtaining the opinion of the European Commission's request for the EU membership should open the possibility for acquiring candidate status and prospects of accession negotiations on membership.

6. Economic Policy Objectives

Review of general conditions and opportunities, the analysis of generated effects to the general economic growth and trends by sector, expected trends and impact to the trends of basic transformation processes of the economy and society and objective possibilities of activating available resources, indicate that the basic goal of the Economic Policy for 2010 is as follows:

Creation of conditions for stabilizing and generating economic growth, whereas the priority is to ensure liquidity and to strengthen competitiveness.

The System of individual goals generating interaction of basic objective of economic policy is essentially based on the orientation to support entrepreneurship and entrepreneurial initiative within the small and medium – sized enterprises providing for the new investments generating development potentials in 2010. It is accounted for that the measures set forth in the Action Plan aimed at reducing business barriers will significantly affect the creation of the doing business environment. Consequently, the individual Economic Policy objectives are focused on:

  1. Decline in public consumption and the business environment improvement;
  2. Creation of conditions for the implementation of new Greenfield investments in tourism and energy sector potentials;
  3. Development of less developed regions and rural areas;
  4. Continued provision of incentives to entrepreneurship, along with the implementation of activities for the optimization of industrial systems, particularly small and medium – sized enterprises.


Macroeconomic indicators prospectus for 2010 represents integral quantitative dimension of the concept of the Economic Policy of Montenegro for 2010 with initial assumptions, basics, goals and directions of growth. Macroeconomic scenario is compliant with the basic development options representing a basis for Economic and Fiscal Programme of Montenegro 2009-2012 and the macroeconomic framework representing the bases of forecasted budgetary framework for 2010.

Projected macroeconomic indicators for 2010

GDP in current prices, million € / 3.201,0
GDP, real growth rate / 0,5
Inflation, % / 2,0
Employment, % / 0,3
Unemployment, % / 1,0
Exchange balance of goods and services, current prices, million € / -570,0
Exchange balance of goods and services, % GDP / -17,8
External debt, million € / 856,2
External debt, % GDP / 26,7
Nett foreign direct investments, current prices, million € / 400,0
Nett foreign direct investments, % GDP / 12,5

Basic macroeconomic trends estimates are based on transferred effects of economic and financial crisis and its reduction during the second half of the year, with the creation of conditions for the revival of economic activity, suggesting that 2010 will represent the year of recovery with objectively possible and real growth in gross domestic product at a rate of 0.5%[1]..

Decelerated recovery of aggregate demand in conditions of low levels of economic exchange with abroad and limited external influence in terms of overcoming recession trends, will condition the maintaining of inflation at a level of 2.0% with the absence of inputs that could generate inflationary expectations.

Solving the problem of employees proclaimed redundant in various companies, among other things, will condition the growth of unemployed persons (1.0%), and subsequently it will slower the employment growth (0.3%).

Investment works on initiated capital infrastructure – related projects (roads, water supply, etc.), infrastructure projects for the treatment of waste and wastewater on local and regional level, within limited capital budget framework, with the use of loans from international financial institutions will provide for the maintenance of investment activity. Stabile and improved business and investment environment will be used to create conditions for activation of investment projects, valorization of resources in energy and tourism. Foreign direct investments are projected at the level of around 400 million €.

Required balancing of public finance stability and budgetary consumption will dictate the stock of external debt of 856, 2 million € representing 26, 7 % of estimated GDP.


Activities related to the implementation of the strategic commitment of Montenegro to join the EU, within the accession process in 2010, are dictated by the obligations undertaken by signing of the Stabilization and Association Agreement and the Interim Agreement on Trade and Trade-related Matters between the European Community and Montenegro, as well as the tasks stipulated by the National Programme for Integration of Montenegro into the EU for the period 2008-2012, as well as the obligations arising from the upcoming stages of the accession process. The key activities will include the following:

  • Regular annual review of the National Programme for Integration – in the first quarter of 2010 is planned to adopt amended NPI for the period 2010 – 2012;
  • Consultative meetings in Podgorica and in Brussels with the objective of finalizing answers to all important issues for the European Commission;
  • Setting the Plan for the establishment of the platform for negotiations on the accession of Montenegro into the EU;
  • Continuation with the application of the Interim Agreement on Trade and Trade - related matters, and following the finalization of the ratification process, the implementation of the overall SAA;
  • Strengthening activities to monitor the harmonization of the national legislation with the acquis communautaire;
  • Strengthening activities to prepare the new Communication strategy for informing the public in the process of accession of Montenegro to the European Union;
  • In accordance with appropriate procedures, projects from the annual IPA programmes and regional projects within multi beneficiary IPA programmes and projects of cross-border cooperation will be completed;
  • In accordance with the Action Plan, activities will be continued aimed at establishing the structures and preparation of procedure for putting into operation the Decentralized Implementation System (DIS) by the end of 2010.


In 2010 in the area of public finance is planned to continue fiscal and structural reforms focused on improvement of the economic environment and development of entrepreneurship, without jeopardizing fiscal sustainability of the public finance.

Basic fiscal policy objectives are as follows:

- Maintenance of macroeconomic stability;

- Ensuring sustainable system of public finance;

- Improve transparency and control over spending public resources;

- Creating conditions for unburdening and reducing barriers to business;

- Attracting foreign direct investment;

- Creating conditions for further reform of state administration;

- Expansion of tax base, while maintaining the established tax policy principles.

Public consumption policy in 2010 will be focused on achieving the basic objective of the Economic Policy for 2010, and it will be based on assessment of the fiscal resources of Montenegro and projected macroeconomic and fiscal framework in conditions of extended impact of the world economic crisis in the first half of 2010. Hence, the main goal of public spending is aimed at limiting the current level of public spending through expenditures rationalization, which will influence the reduction of its share in the GDP.

In order to increase budget revenues, amendment will be made on: income tax of physical persons, contributions for compulsory social insurance, tax on profits of legal entities, as well as tax on the use of passenger cars, vessels, airplanes and aircrafts.

Budgetary policy in 2010 will be achieved by implementing the following:

- Functioning of a sustainable system of public finance through the adjustments in public spending, or reduction in expenses;

- Continuation of implementation of the Medium-term budgetary framework through the reform process of budget preparation and planning and introduction of financial ceilings for users in a multi-annual budget period;

- Continuation of implementation of the capital budget through the development of a database on all projects that are linked with the budget, which main goal would be to achieve an adequate analysis of the fiscal risk improving the decision-making process in selecting priorities;

- Continuation of implementation of the programme budgeting, through further implementation of programmes and subprogram’s allowing for the introduction of logical programme classification for the overall budget and preparation of the system for budget monitoring and execution in accordance with the programme classification;