Montenegro flag Montenegro: Economic and Political Overview

The economic context of Montenegro

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

As the smallest country of the Balkans, Montenegro has a relatively fragile economy that is transitioning to a market system and is based on financial investments, especially in the energy and tourism sectors (private investment accounts for around one-fifth of GDP). In 2021, the country’s economy was severely hit by the COVID-19 pandemic and the global crisis that followed, with the tourism sector (the main driver of growth in recent years) being particularly affected and the simultaneous weakening of both external and domestic demand (with a decrease of 80% in the first nine months of the year in terms of tourist arrivals). In 2021, GDP recovered from a disastrous 2020 with a growth rate of 7% as per the IMF. Montenegro’s economy is expected to further rebound thanks to investments supporting construction works and the revival of private consumption, with growth forecasted at 5.6% this year and 3.6% in 2023, though the conjuncture remains volatile and subject to the evolution of the pandemic.

Concerning public finances, Montenegro generally registers a budgetary deficit. In 2021, the country was expected to record a primary surplus; however, the fiscal measures taken to cushion the effects of the pandemic prompted the government budget deficit to climb to EUR 1.150 million, equal to around 21 % of GDP (data from the Ministry of Finance). The government has been forced to take austerity measures to counter the impact of COVID-19 on public finances. During summer 2021, it adopted a stimulus package worth EUR 1.2 billion (26.6% of GDP), causing the budget deficit to skyrocket. In addition to these measures, the country adopted the Law on Electronic Fiscalisation in June 2021 to enhance VAT collection and reduce the grey economy. Conversely, over the course of 2021, the debt-to-GDP ratio decreased from 107.2% to 93.4% in 2022 (IMF, latest data available). To consolidate public accounts, the Minister of Finance has indicated that a tax reform will be implemented between 2022 and 2023. Planned measures include the introduction of an income tax for legal entities, as well as a progressive income tax for individuals while increasing the gross monthly tax-free salary to EUR 700. Another matter of concern is the fact that most of the public debt is denominated in USD and the country has an external trade deficit of almost one-fourth of its GDP. Therefore, Montenegro is vulnerable to a decline in external demand, and its high financing needs expose the country to potential changes in risk aversion and disruptions in global financial markets. In 2021, high global energy prices and stronger internal demand drove inflation to 2% (from -0.2% one year earlier), with a modest decrease expected for 2022 and 2023 (1.5% and 1.4%, respectively). One of Montenegro’s main objectives is to join the European Union: the country acquired the official status of a candidate for membership in December 2010. To advance in the accession negotiations, it should demonstrate significant progress in several domains, including the rule of law, the fight against corruption and organised crime.

Although decreasing in recent years, the unemployment rate has been historically high and grew to 24.2% in 2021 (from around 20.5% in 2020 – data Employment Agency of Montenegro) and is expected to reach 25% in 2022. The country maintains a large informal sector, whereas the labour force participation rate remains low. Moreover, Montenegro is one of the poorest countries in Europe: according to the latest data available by the European Commission, almost 24% of the population is at risk of poverty or social exclusion.

 
Main Indicators 20202021 (e)2022 (e)2023 (e)2024 (e)
GDP (billions USD) 4.785.876.136.677.21
GDP (Constant Prices, Annual % Change) -15.313.07.22.53.0
GDP per Capita (USD) 7e991011
General Government Gross Debt (in % of GDP) 107.386.674.470.670.9
Inflation Rate (%) -0.22.412.89.24.5
Current Account (billions USD) -1.24-0.54-0.85-0.94-1.00
Current Account (in % of GDP) -26.1-9.2-13.8-14.0-13.8

Source: IMF – World Economic Outlook Database, October 2021

Note: (e) Estimated Data

Main Sectors of Industry

Montenegro has a labour force of 278,000 people out of its 622,000 population. Agriculture, which according to the latest data by the World Bank represents 6.4% of the GDP (roughly 60% livestock breeding and 40% cultivation) and 7.2% of the workforce, remains hampered by its outdated methods. Agricultural land accounts for 19% of the total land area (FAO). In the coastal region which benefits from the Mediterranean climate, citrus and olive cultures are widespread, seasonable vegetables and tobacco can be found in the central parts, and the North benefits from the extensive sheep breeding. The main products exported are wine and beer, though the increased focus on tourism over the past decade has contributed to the waning of agriculture, increasing the country’s reliance on food imports. As Montenegro advances in the negotiations to join the EU, the country is working on the improvement of its agricultural sector by the EU pre-accession requirements.

Industry represents 16.1% of the country's GDP and employs 19,4% of the workforce. Its contribution to the economy has been declining in recent years. The steel and aluminium industry alone represents a good part of the country's exports and is expected to boost economic development. The manufacturing sector is still underdeveloped and accounts for only 4.1% of GDP. According to the national statistical institute, Montenegro's industrial output grew 4.9% in 2021 after declining by 0.9% in the previous year. The industrial output in the manufacturing sector went up 21.4%, whereas it fell by 27.5% in the mining sector and 14.9% in the utilities sector.

The tertiary sector contributes 58.7% to the GDP and employs almost three-quarters of the workforce (73.4%). Tourism is the third-largest industry and consumes around one-third of total investment. It alone provides 20% of the GDP (EU Commission). The sector has been in full expansion in recent years, especially on the Adriatic Coast: every year Montenegro welcomes three times as many visitors as its total population. Unfortunately, this sector was heavily impacted in 2021 by the COVID-19 pandemic (with the number of tourist arrivals plummeting 80% in the first nine months of the year due to travel restrictions and virus-related concerns).
The country is seeking to improve its tourism infrastructure and develop its eco-tourism industry to exceed 30% of GDP by 2027. The government is trying to attract large foreign hotel chains that will provide hospitality standards similar to those in Europe. Montenegro's hotel infrastructure was underdeveloped, but with several huge infrastructure projects; the situation is beginning to change. On another hand, the county is also seeking to diversify its economy to be less dependent on tourism.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 7.2 19.4 73.4
Value Added (in % of GDP) 6.4 16.1 58.7
Value Added (Annual % Change) -2.2 5.6 5.4

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

Find more information about your business sector on our service Market reports (keyword).

 
 

Find out all the exchange rates daily on our service International currency converter.

 

Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
63,4/100
World Rank:
80
Regional Rank:
39

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 
 

Country Risk

See the country risk analysis provided by Coface.
 

Return to top

 

Return to top

Any Comment About This Content? Report It to Us.

 

© Export Entreprises SA, All Rights Reserved.
Latest Update: November 2022

Return to top