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NewsThis year could be challenging for Montenegro because of public finances

This year could be challenging for Montenegro because of public finances

This year will be challenging for all countries, especially for those that, like Montenegro, have a problem with public finances. We can expect the continuation of the trend of insecurity and instability, said economic analyst Mirza Mulešković.

He considers wage increases justified and expected due to the current political situation, but warns that it is debatable how to service the increase in current consumption, if we do not have additional income.

– I am afraid that we will have to increase taxes, which would threaten the economy and the standard of citizens – said Mulešković.

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He points out that It is necessary to additionally strengthen the real sector, which is the only one that creates money and to the greatest extent finances all the obligations of the state.

– For that, the business environment must be further improved, dedicated to the stabilization of the current situation in Montenegro and the path to the EU, which is the only right one for Montenegro and its economy, and freed from thinking about any other modalities of association that can take us away from that path – asserts Mulešković and notes that this is the only way we will once again become an attractive investment destination and attract credible investors.

– We need a document that will define the priority areas and sectors of the economy, which will be the backbone of development for the next period. We certainly still have a lot of space to develop tourism, agriculture, energy, but also industry and the IT sector, because without such development there is no sustainability of public finances – says Mulešković.

He points out that politically stable countries, where institutions function and where there is healthy communication between all participants in the decision-making process, will have an easier job. For Montenegro, where we continue to have an increase in expenditures for work contracts, official trips, etc. it will be difficult.

– The capital budget does not allow the growth and development of the economy. But we have to wait for the audit to see how much of the capital budget was used last year. In recent years, we have announced the largest capital budgets, but at the end of the year we do not have the planned results. Last year, the implementation of only a third of the proposed capital projects began, and the rest have not even started – said Mulešković, emphasizing that there is no development without capital projects.

He assessed that this year’s budge is not development, but social and spending.

– It is a continuation and logical sequence of policies from last year, which focus on social benefits, not capital projects, so the consequence is an increase in spending in the public sector – points out Mulešković and reminds that the IMF and the European Commission warned about this.

IMF and EC reports warn

– The planned borrowing of EUR 600 million would not be problematic if it was aimed at investments and capital projects, but we are borrowing for current consumption, which is not good – says Mulešković, who is concerned that we borrowed an additional EUR 50 million just a few days before the end of last year, at an interest rate of as much as 7.5%.

– This is an indicator of what borrowing conditions we can expect this year – warned Mulešković.

He pointed out that a lot will depend on the situation in Ukraine and the possible end of Russia’s aggression, while the current political situation in Montenegro does not give encouraging inputs to expect a slightly better year.

For the past year, he states that decisions had to be made quickly, that economic recovery was expected after covid, and the world entered a new crisis. In our country, it started with tax reform, an increase in the minimum wage and high inflation. He warned that stabilization of prices can only be expected next year, and that political instability has deepened problems in the economy, which will have longer-term consequences than the impact of global events.

– As a result of instability, blockage of institutions, decision-making outside EU rules, without consultations and economic analyses, the Montenegrin business environment is less desirable for investment. And that must be resolved as soon as possible, because the prolongation of this situation causes more damage every day – Mulešković believes.

He cites data that the Montenegrin economy recorded a growth of 3.2% in the first three quarters, but this is the result of higher spending by households due to higher incomes. On the other hand, the number of companies in the blockade is growing, with debt exceeding one billion euros. He warns that the plan did not satisfy even tourism, because the inflation rate of over 17% should be included in the income of one billion.

Recovery possible in the next year

According to Mulešković, the projections are that there will be no reduction in product prices globally this year, but inflationary pressure will be felt this year as well.

– However, he will not be as pronounced as this year, which is somewhat positive. We can only expect price stabilization and economic recovery next year. According to some projections, the next year will see a slowdown in the growth of the economies of the world’s strongest powers, which is not a good sign for all other economies either. This growth will depend on several factors, but the most important are: the situation in Ukraine and the possibility of ending the unjustified war, the rise in interest rates (which further slows down economic development), but also the situation related to China and the covid-19 pandemic – says Mulešković.

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