According to the proposed 2025 budget for Montenegro, the country is expected to borrow up to 900 million euros. Public sector salaries are projected at around 717 million euros, with an additional 16 million euros allocated for service contracts and 46 million euros for consultancy services, as stated by economic analyst Mirza Mulešković in an interview on 24 Sata TV.
Mulešković highlighted that the debt-to-GDP ratio of 65% is a positive indicator of economic health. “A lower debt-to-GDP ratio usually signals strong economic activity. However, that doesn’t always mean an economy is performing well. For instance, Japan has a debt ratio of around 268% and Singapore is at 167%. These are not poor economies, quite the opposite,” Mulešković pointed out.
Debt and economic activity
When analyzing debt in relation to GDP, it’s important to consider the structure of the economy and whether it is capable of repaying the borrowed money. Mulešković emphasized that if debt is invested in infrastructure projects and the creation of new jobs, it can lead to long-term economic benefits. He commended the government’s decision to avoid borrowing for current consumption, focusing instead on financing infrastructure and repaying old debts. “This should be the standard practice in Montenegro,” he said. “If debt is used for infrastructure, economic benefits can be expected in the future. But if debt is used for current consumption or paying off old obligations, no benefits will follow.”
Despite the modest repayment of debt from current revenues in recent years, Mulešković argued that more money could have been allocated toward debt repayment. Instead, he observed that current consumption has been growing, as reflected in the proposed 2025 budget.
The need for industrial production
Mulešković noted that the main driver of economic growth should be production. He pointed out that Montenegro has a significant trade deficit, showing that the country is not producing enough. “What Montenegro is missing is production. We need a real economy, something that creates added value. This is where we should have focused our efforts: strengthening the real economy, the sectors that create new economic value,” he said.
He also recalled that in 2020, tourism—Montenegro’s main strategic sector—was severely affected by the COVID-19 pandemic, which exposed the fragility of the economy. “If tourism is the main sector, and all other sectors are underdeveloped, we risk facing problems in the future if something like the pandemic happens again or if weather conditions affect the tourism season,” Mulešković explained.
Budget revenue and dependence on consumption
The proposed 2025 budget is heavily reliant on VAT revenues, which are expected to make up around 50% of total revenue. This reflects a focus on domestic consumption. However, Mulešković raised concerns about the potential risks to this approach. “What if consumption falls? What if citizens decide to save more? What happens if next year’s tourist season is weaker than expected? If VAT increases, Montenegro may become less attractive than it was before,” he warned. He pointed out that this year, Montenegro was already less competitive compared to neighboring countries.
Mulešković also stressed that the sustainability of Montenegro’s public finances in recent years has largely been due to foreign spending. It is estimated that there are about 100,000 foreigners in Montenegro who regularly spend money, boosting demand and contributing to higher tax revenues. “The biggest increase in state revenue has come from VAT collections, driven by foreign spending,” he explained.
Debt financing and infrastructure projects
While the 2025 budget proposes a debt of up to 900 million euros, Mulešković expressed concern over relying too heavily on borrowing to finance infrastructure projects. He cautioned that borrowing to finance infrastructure should not be the only solution, especially since interest rates are expected to rise. “It’s not ideal to finance all infrastructure projects through debt, and it’s even less ideal to use new debt to pay off old debt,” he said. “Montenegro still lacks a diversified economy that can generate enough money to service all of its debt obligations.”
Public sector spending and the need for reform
Mulešković also criticized the government’s approach to public sector spending, particularly in terms of wages. “The proposed budget includes 717 million euros for public sector wages, 46 million for consultancy services, and 16 million for service contracts,” he pointed out. “These funds should have been directed toward projects that would create a real economy—one that generates new value. Instead, we continue to see rising public sector costs with little focus on economic development that could produce sustainable growth.”
In conclusion, Mulešković argued that more needs to be done to reduce current expenditures, especially in the public sector, and to focus on strengthening the productive economy through infrastructure investment and industry development.
