Social transfers play a crucial role in Montenegro’s economic and social fabric. Pensions, family benefits, and targeted support measures provide stability in a country with limited income diversification. Yet, the sustainability of these transfers increasingly depends on a revenue structure that has not kept pace with rising obligations.
The main challenge lies in concentration. Tourism generates a large share of public revenue, but it is cyclical and vulnerable to external shocks. Beyond tourism, the tax base remains narrow, restricting the state’s ability to finance growing social commitments without resorting to borrowing. As expectations rise, social transfers risk becoming politically irreversible. Once introduced, benefits are difficult to reduce, even when fiscal conditions worsen, creating a ratchet effect in public spending.
Without revenue reform, maintaining social transfers will require either higher borrowing or cuts in investment. Both options entail costs: borrowing heightens vulnerability, while reducing investment undermines long-term growth. Expanding the revenue base, improving tax compliance, and better aligning benefits with contributions are increasingly discussed in domestic analysis. Although politically challenging, these reforms are economically unavoidable if social policy is to remain credible.
