Montenegro relies on a narrow tax base with an economy centered on three sectors, and the government largely focuses its efforts on developing tourism, energy, and to a lesser extent, agriculture. The tourism sector officially accounts for about 25 percent of GDP, although some analysts believe it accounts for over one third when considering the grey economy. In the energy sector, the most important project in the transmission system was the construction of a two-way underwater electricity cable to export power to Italy, which included the development of a 433-kilometer-long tunnel approximately 1,200 meters below the Adriatic Sea surface. The project cost 800 million euro and began operation in December 2019. There are several other ongoing energy projects, including the controversial ecological reconstruction of the coal-fired thermal plant in Pljevlja in partnership with People’s Republic of China (PRC) company Dongfang Electric Corporation that began in April 2022, as well as the development of a 55-megawatt wind power plant in Gvozd, a project supported by the European Bank for Reconstruction and Development (EBRD).
According to the Central Bank of Montenegro (CBCG), foreign direct investment (FDI) in 2022 totalled to €1.15 billion. Although no one source country dominates FDI, significant investments have come from Serbia, Russia, Germany, Switzerland, UAE, Turkey, Italy, and the United States, with other investments coming from Cyprus, the Netherlands and Austria. Montenegro has one of the highest public debt-to-GDP ratios in the region, but this ratio has been declining over the last two years thanks to strong growth and repayments, dropping from a high of 105 percent in 2020 to about 73 percent in April 2023. Infrastructure development remains a government priority. The most visible current project is the Bar-Boljare highway, Montenegro’s first modern highway which is designed to better connect the more developed south with the relatively underdeveloped north of the country. The highway, the first and most expensive portion of which was built by the China Road and Bridge Corporation and became operational in July 2022, has been widely criticized as a textbook example of PRC “debt trap diplomacy”. The completion of the full four-stage project continues to pose challenges to Montenegro’s fiscal position, given limited room to finance the construction of the three remaining sections.
The pandemic hit Montenegro’s economy hard, with the unemployment rate reaching 24 percent by the end of 2021, although it has since dropped to 16 percent at the end of 2022. In addition, gross domestic product (GDP) declined by 15.3 percent in 2020, the biggest drop in Europe. The country enjoyed a strong recovery in 2021, however, with the government announcing a GDP growth rate of 14 percent for the year, one of the highest in Europe. GDP growth was 6.9 percent in 2022, led by private consumption and a better-than-expected tourism season. Economic recovery will continue to face challenges, however. Developments in Ukraine and Russia, two of Montenegro’s main sources of tourists and together accounting for about 16 percent of total arrivals and over 20 percent of tourism spending in 2021, will threaten economic growth as the country will likely struggle to compensate for their absence during the 2023 tourism season.
In 2022, Montenegro began implementing a wide-ranging economic reform program known as Europe Now, which eliminated all individual health care contributions, almost doubled the minimum wage, increased pensions, and introduced a system of progressive taxation. The economic impact of these ambitious new measures will take time to become clearer. However, analysts have attributed Montenegro’s 20 percent increase in consumption and an inflation rate of over 17 percent in 2022 to the reforms, coupled with a huge inflow of Russian and Ukrainian citizens as the result of Russia’s war of aggression against Ukraine. Montenegro has not yet joined the Open Balkan Initiative, previously known as “Mini-Schengen,” a project championed by Serbia, Albania, and North Macedonia and designed to facilitate trade, services, and movement of people throughout the Western Balkans. Montenegro continues to grapple with rule of law concerns, including corruption and organized crime.
As the 29th NATO member and the long-standing EU-accession front-runner, Montenegro plays a pivotal role in a volatile region still struggling to fully embrace Euro-Atlantic values and susceptible to malign foreign influence. This has been a central theme since the country’s first transition of power in 30 years following the narrow victory of a broad but disparate coalition of civic, moderate, and radical pro-Serb and pro-Russian parties in the August 2020 national elections. Since then, two successive coalition governments have lost votes of no confidence in the parliament, first in February and then in August of 2022. Voters elected a political newcomer in the country’s presidential runoff election held on April 2, 2023, ending the 32-year rule of Europe’s longest serving leader. After a long-standing political impasse, snap parliamentary elections were called for June 11, 2023.
|Measure||Year||Index /Rank||Website Address|
|Transparency International Corruption Perceptions Index||2022||65 of 180||http://www.transparency.org/research/cpi/overview|
|Global Innovation Index||2022||60 of 132||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country (M USD, stock positions)||2022||USD 45 million||https://mia.gov.me/|
|World Bank GNI per capita||2021||USD 9,340||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|