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Focus on the economy: Montenegro

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Montenegro’s economy relies excessively on tourism and foreign-born workers.

Home to just over 600,000 people, stunning mountains and perhaps the most beautiful stretch of Adriatic coastline, Montenegro’s days of darkness are over. Now connected to the rest of Europe by low-cost airlines via its capital Podgorica, tourism in Montenegro is expected to return to pre-pandemic levels this year.

The strength of its tourism industry – boosted by the arrival of Ukrainian and Russian citizens resenting war and conscription – and the 516 million euros in foreign direct investment (FDI) between January and July this year have contributed significantly significant to the country’s resilience in the face of the crisis. high inflation.

Inflation reached 17.5 percent in November 2022, then declined for eight months and will reach an average of 9.1 percent in 2023, as strong tourism, lowest ever unemployment levels and the increase in the minimum wage maintains inflationary pressure.

Social reform stimulates consumption… and inflation

This minimum wage increase was part of a broader social reform in 2022 that also reduced the tax burden on low-income people and boosted household consumption, combined with high tourism and FDI to push growth to 6, 5 percent in the first half of 2023.

The abolition of compulsory health contributions and the introduction of a tax-free part of wages through social reform will further reduce unemployment, which, according to the forecasts of the Vienna Institute for International Economic Studies (wiiw), will reach a new low of 13.8 percent this year.

“The country faces problems due to relatively high youth unemployment, which contributes to a “brain drain”,” Bernd Christoph Ströhm, country expert at wiiw and author of his report. October forecast for Montenegro, says Emerging Europe.

“Montenegro is also experiencing a very pronounced labor shortage in the hotel, catering and construction sectors. This is why some 20,000 foreigners, or around ten percent of the total number of employees in Montenegro, have to be employed every year during the crucial tourist season.”

In 2022, the services sector employed three-quarters of the country’s working population.

Montenegro’s information technology sector, which employs only 2.6 percent of the workforce, is more modest. In the latest edition of IT competitiveness index of emerging countries in EuropeMontenegro ranks twentieth out of 23 countries in the Emerging Europe region in the overall index, second to last for IT infrastructure and last in the region for ICT talent.

However, it ranks second behind Estonia for the sector’s economic impact thanks to its cost competitiveness.

Montenegro is already a leader in hydropower and wind – it had the largest share of wind power in Europe’s national electricity generation in December – but there is still room for growth . The government approved the construction of solar power plants in Cetinje and Nikšić in March and the country’s grid managers will invest 200 million euros over the next few years to prepare the electricity grid for this additional energy.

A new liquefied natural gas (LNG) terminal under construction in the port city of Bar and an undersea electricity cable linking the same city to Italy are poised to make Montenegro a gas and oil transit hub. electricity for Italy and the entire Balkan Peninsula.

Finally political stability?

Ströhm expects a new Europe Now government to focus investments on the development of renewable energy and generally continue his country’s economic policies. predecessors.

“The Europe Now movement will continue to develop and introduce policies to reduce the gap between the minimum wage and basic food prices,” says Ströhm. “Especially when it comes to policies to limit inflation, the new government will not deviate from price caps on basic commodities. In April 2023, the leader of the Europe Now movement, Milojko Spajić, already considered the current campaign of the outgoing government “Stop Inflation” as a successful policy.”

“However, it is not yet clear how the promises of the Europe Now movement to increase the minimum wage or reduce daily working hours to seven hours will be financed, particularly in light of the current public debt situation of the Montenegro,” he adds.

As its name suggests, Europe Now’s priority is to finalize Montenegro’s membership of the European Union, scheduled for 2025. As Europe Now seeks to deliver on its campaign promises, it will also need to prioritize for the accession of the European Commission. concerns on Montenegro’s increasing public debt, high budget deficits and maintaining macroeconomic stability.

Nonetheless, Europe Now’s rise to power – Spajić is expected to be confirmed as prime minister this week – is historic and offers an opportunity for political stability after years of chaos.

Before Europe Now’s election victory in June, Milo Đukanović had ruled Montenegro as prime minister or president almost continuously for three decades, until its independence from Serbia in 2006 and its membership in NATO in 2017.

He led the Democratic Party of Socialists of Montenegro (DPS), successor to the Yugoslav Communist Party, which governed Montenegro alone or in a coalition from 1991 until 2020, when he was defeated in parliamentary elections.

Internal disagreements between the pro-Serb and pro-Western factions of the new government led to its ouster in a vote of no confidence in February 2022, and then another government, more strongly pro-Western, was formed in April to s collapse four months later.

Europe Now’s coalition will have a majority of 44 seats in an 81-seat parliament, which will hopefully ensure an end to years of political instability and institutional impasse and thus attract capital investment .

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