Montenegro, Significant investments in energy and tourism are expected, News
In the next three years, Montenegro needs to repay 1.5 billion EUR of old debts and 420 million EUR for interest on old debts, which will require additional measures of fiscal consolidation, optimization of consumption and creation of conditions for economic growth in order to increase state revenues.
This is stated in the Macroeconomic Framework for the period from 2023 to 2025, which is an integral part of the explanation of the budget for the following year.
This means that in the coming period, savings measures will be combined in budget spending, but that capital investments and encouraging business development will continue.
– Bearing in mind the high need for borrowing in the next medium-term period, as well as the movement of the main fiscal aggregates that are outside the limits established by the rules of fiscal responsibility in accordance with the Law on Budget and Fiscal Responsibility, in order to create conditions for the long-term sustainability of public finances, it is necessary to implement additional measures fiscal consolidation aimed at optimizing spending and generating new sources of income – it is stated in the document.
As it is explained, changes and adoption of new legal solutions in the area of budget expenditures in the previous period led to the growth of current budget spending to a record level that will be recorded in 2023, and then continued in the next medium-term period.
It is also noted that it is necessary to create prerequisites for new economic growth and improvement of infrastructure and quality of life through capital investments, but also that this will create additional pressure on public spending and narrow the Government’s fiscal space.
In order to pay back old debts and provide money for planned capital investments, the Government foresees borrowing EUR 2.5 billion for the next three years, of which one and a half billion will be returned immediately for old debts, and one billion is for interest payments and investments. It is estimated that the net public debt will amount to EUR 4.1 billion at the end of this year and will make up 73.1 percent of the estimated GDP of EUR 5.7 billion.
The authors of the document expect that the trend of growth in public revenues from this year, primarily from VAT, will continue in the next year, but also that inflation will slow down.
– Starting from the basic macroeconomic scenario, a gradual stabilization of macroeconomic conditions and price movements is expected in 2023, as well as a complete recovery of the tourism sector compared to the pre-crisis level. The strong recovery of economic activity recorded in 2022 contributed to the significant collection of budget revenues, which in the current year recorded an increase for nine months both in relation to the planned and in relation to 2021. Positive macroeconomic prospects will result in continuous growth of budget revenues in the medium term. On the other hand, according to the fiscal framework for the period from 2023 to 2025, public finances in the next medium term will remain under the strong influence of the growth of budget expenditures conditioned above all by the growth of mandatory budget spending – it is stated in the document.
The authors expect that private consumption, which includes the consumption of tourists, will be one of the main drivers of dynamic economic growth, along with the intensification of the new investment cycle and the continued growth of export of goods.
– Already in 2023, a full recovery of tourism is expected compared to the pre-pandemic record level, supported by the extension of the season and the diversification of the structure of foreign guests and broadcasting markets. The start of work on the first, priority section of the Bar-Boljara highway, which will provide safer and faster regional connectivity, is an added value for the tourism industry and the overall economic activity in Montenegro – it is stated in the document.
According to preliminary forecasts, the Government predicts an average rate of economic growth of around four percent in the next three-year period.
– The dynamic growth rates of the Montenegrin economy will primarily be determined by strong domestic demand, with private consumption and investments as drivers of economic activity… All relevant international institutions predict that the Montenegrin economy will grow faster than the regional average in the current year and in 2023, with improving conditions for the labor market, a gradual increase in the number of employees and a further drop in the unemployment rate below the level before the pandemic – the document states.
They expect significant investments in energy and tourism
The start of a new investment cycle will support the expected growth rates in 2023 and the following years. The currently announced investment plans include investments by public and private investors, predominantly in the sectors of tourism, energy, road and utility infrastructure, agriculture, and the telecommunications and information technology sectors, the document states.
They expect significant investments in the energy transition, that is, large projects in the field of renewable energy sources, especially solar and wind power projects.
– The investment cycle will be strongly supported by the high value of capital projects financed from public sources, starting in 2023. Additionally, the first phase of the European Commission’s Investment and Economic Plan for the Western Balkans will stimulate primarily infrastructure investments and mobilize private sector funds in relevant sector investments. Foreign direct investments will continue to support economic growth, with a high projected participation in the GDP structure of around 10% in the following years, according to the announcements of projects by foreign investors in Montenegro – it is stated in the document.
In its macroeconomic forecasts, the government expects high growth rates to continue and inflation to stop. They also announce the optimization of consumption, because the changes in the law have increased the costs of the budget, local media writes.
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