As the smallest country in the Balkans, Montenegro has a small economy that is moving to a market system and is based on financial investment. This is evident in the energy and tourism sectors (private investment accounts for about one-fifth of GDP). In 2020, the country’s economy was severely affected by the COVID-19 pandemic and the ensuing global crisis, with the tourism sector particularly affected (the main driver of growth in recent years) while both external and domestic demand weakened.
Overall, the IMF estimates that GDP has fallen by 12%. Montenegro’s economy is expected to recover from investment in support of construction work and a resurgence of private consumption, with growth projected at 5.5% this year and 4.2% in 2022, although the situation remains volatile and depends on the pandemic.
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Overview of the internal state of Montenegro
As far as public finances are concerned, the Montenegrin economy usually has a budget deficit. It was expected that in 2020 the country will have a primary surplus. However, a sharp reduction in budget revenues (-13.1%) and fiscal measures taken to mitigate the effects of the pandemic have led to an increase in the state budget deficit to 419.5 million euros in 2020. This corresponds to 9.8% of GDP (according to the Ministry of Finance).
The European Commission forecasts that the deficit will be about 4.7% in 2021 and 3.6% next year. Conversely, during 2020, the debt-to-GDP ratio rose from 79.3% to about 90.8% (IMF). Completion of the construction of the first section of the Bar -Bolyare highway (financed by a loan obtained in China Eximbank ), which is currently scheduled for mid-2021, should help ease the pressure on public finances in 2022. This will reduce the total debt to 86.1%.
Additional factors affecting the Montenegrin economy:
- Most public debt is denominated in US dollars, and the country’s foreign trade deficit is almost a quarter of its GDP. Montenegro’s economy is vulnerable to declining external demand, and its high funding needs are subjecting the country to potential changes in risk aversion and disruption in global financial markets.
- In 2020, low world energy prices and weak domestic demand led to lower inflation (-0-5%), with moderate growth expected in 2021 and 2022 (0.7% and 1.1% respectively).
- One of the main goals of Montenegro’s economy is to join the European Union. The country received official candidate status in December 2010. To move forward with the accession negotiations, it must demonstrate significant progress in several areas, including the rule of law, the fight against corruption and organized crime.
Despite declining in recent years, the unemployment rate has been historically high, rising to 20.5% in 2020 (from about 15.3% a year earlier, according to the Montenegrin Employment Agency). The rate is expected to decline over the forecast horizon (16.6% in 2021 and 15.9% in 2022 – the EU Commission). The country has a large informal sector, while labor force participation remains low.
The main branches of the economy
Montenegro’s economy employs 278,000 people out of a population of 622,000. Agriculture, which according to the latest World Bank figures accounts for 6.4% of GDP (approximately 60% livestock and 40% farming) and 8% of the workforce, is still constrained by outdated methods.
Agricultural land accounts for 19% of the total land area (FAO).
Agriculture
In the coastal region with a Mediterranean climate, citrus and olive crops are widespread, seasonal vegetables and tobacco can be found in the central parts, and sheep farming is widespread in the north.
Wine and beer are the main exports, although increased attention to tourism over the past decade has contributed to the decline of agriculture, increasing the country’s dependence on food imports. As Montenegro’s economy advances in EU accession negotiations, the country is working to improve its agricultural sector in line with EU accession requirements. Processing of agricultural products is developing.
Industry
Industry accounts for 16.1% of the country’s GDP and employs 19% of the workforce. Its contribution to the country’s economy has been declining in recent years. The steel and aluminum industries alone account for a significant share of the country’s exports and are expected to contribute to economic development.
The manufacturing sector is still underdeveloped and accounts for only 4% of GDP. According to the country’s statistical office, the industrial output of Montenegro’s economy fell by 0.9% in 2020 after losing 6.3% in 2019. Salaries in this sector are among the lowest.
Tourism
The tourism sector accounts for 58.7% of GDP and employs almost three quarters of the workforce (73%). Tourism is the third largest sector of the economy and consumes about a third of all investment. Only it provides 20% of GDP (EU Commission). In recent years, the sector has expanded completely, especially on the Adriatic coast. Montenegro receives three times more visitors each year than its population as a whole.
The country seeks to improve its tourism infrastructure and develop the ecotourism industry so that by 2027 it will exceed 30% of GDP. The government is trying to attract large foreign hotel chains that will provide hospitality standards similar to European ones. This is facilitated by private real estate.
The hotel infrastructure of the Montenegrin economy was underdeveloped, but there were several major infrastructure projects; the situation is beginning to change. However, the impact of the COVID-19 pandemic was significant: the number of tourists arriving fell by 80% in the first eight months of the year due to travel restrictions and virus concerns. This affected the average standard of living of the population.
Changing the situation with regard to COVID-19
From an international perspective, you can view the latest health reports published by the World Health Organization, as well as daily global statistics on the development of the coronavirus pandemic , including data on confirmed cases and deaths by country.
To find out about the latest public health situation in the country and current sanitation measures, visit the Montenegrin Government’s website, including the latest information on the containment measures and recommendations in the field of public health. More information and updates can be found on the website of the National Institute of Public Health and on the official portal.
Travel restrictions
Information on travel restrictions imposed by the Montenegrin authorities can be found in the Travel section of the government’s website. More information can be found on the website of the US Embassy in Montenegro.
To find out about international prospects, you can check out the latest travel updates available on the IATA website.
Restrictions on imports and exports
For information on all measures applicable to the movement of goods during a sanitary emergency due to the outbreak of COVID-19 (including possible restrictions on imports and exports, if applicable), please contact the Montenegrin Customs Administration portal.
For an overview of trade restrictions due to the COVID-19 pandemic, please refer to the section on Montenegro on the International Trade Center’s COVID-19 Interim Trade Measures website.
Economic recovery plan
To learn about the economic measures taken by the Montenegrin government to address the impact of the COVID-19 pandemic on the national economy, visit the special pages of the official portal Coronainfocg.me (in Bosnian). The government has announced a second package of measures and a phased opening of the economy. Additional information is available on the portal of the Central Bank of Montenegro and on the KPMG website.
For an overview of the main economic policies in response to the COVID-19 outbreak (fiscal, monetary and macroeconomic) taken by the Montenegrin government to limit the socio-economic impact of the COVID-19 pandemic, please refer to the section on Montenegro. IMF policy monitoring platform.
Business support plan
For information on the local business support scheme and tax measures established by the Montenegrin government to help businesses cope with the economic impact of the COVID-19 epidemic on their activities, visit the official portal Coronainfocg.me (in Bosnian). Click here to read the Business and Employee Support Program (in Bosnian).
For an overview of international SME support policies in response to the COVID-19 outbreak, see the World Bank Map of SME Support Measures in Response to COVID-19.
Exporter support plan
At present, official government sources do not provide any information on specific programs for Montenegrin exporting companies introduced by the national government after the outbreak of the COVID-19 epidemic. For updated information, visit the official portal of the Government of Montenegro.