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- GDP (PPP):
- $7.3 billion
- 0.0% growth
- 1.3% 5-year compound annual growth
- $11,800 per capita
- Inflation (CPI):
- FDI Inflow:
Montenegro’s economic freedom score is 63.6, making its economy the 68th freest in the 2014 Index. Its score is 1.0 point higher than last year, with notable gains in business freedom and investment freedom outweighing declines in labor freedom, monetary freedom, and freedom from corruption. Montenegro is ranked 31st out of 43 countries in the Europe region, and its overall score is above the world average.
Montenegro was first graded in the 2009 Index and has advanced its economic freedom by over 5 points since then. Six of the 10 economic freedoms, including investment freedom, labor freedom, business freedom, and freedom from corruption, have improved, with investment freedom gaining 25 points. Tying its highest overall score ever, Montenegro remains “moderately free.”
However, economic freedom is still curtailed by the lack of institutional commitment to the strong protection of property rights and an effective fight against corruption. The court system remains inefficient and vulnerable to political interference.
The Republic of Montenegro declared its independence from Serbia in 2006. In 1996, Montenegro had adopted its own economic policy and even adopted the German mark as its currency. Upon gaining independence, it introduced significant privatization and adopted the euro as its legal tender despite not being a member of the eurozone. The Coalition for European Montenegro, an alliance between the Democratic Party of Socialists of Montenegro and two other center-left parties, won the October 2012 parliamentary elections. Its leader, Milo Ðukanovic, became prime minister in December 2012. Montenegro was invited to undertake a NATO Membership Action Plan in 2009, became a candidate for membership in the European Union in 2010, and became a member of the World Trade Organization in 2011. Its economy relies heavily on tourism and exports of refined metals. Unprofitable state companies burden public finances, and unemployment is high.
Corruption remains pervasive in the executive and judicial branches and is partly a legacy of the struggle against the Miloševic regime in the 1990s, when the small republic turned to various forms of smuggling to finance government operations. Although the European Commission cited progress on judicial reform in 2012, the constitutionally independent judiciary remains inefficient and subject to political interference.
The individual income and corporate tax rates are a flat 9 percent. Other taxes include a value-added tax (VAT) and an inheritance tax. The overall tax burden equals 24.2 percent of gross domestic income. Government expenditures equate to 44 percent of GDP, and public debt has risen to over 50 percent of gross domestic income. The budget has come under pressure as the government seeks to cover the losses of a failing aluminum plant.
Launching a business takes six procedures and 10 days, and no minimum capital is required, but licensing takes more than 100 days and costs over 10 times the level of average annual income. Labor regulations lack flexibility, discouraging more dynamic job creation. Massive subsidies (more than 10 percent of GDP), mainly for a state-supported Communist-era aluminum factory, distort the economy.
Montenegro’s average tariff rate is 3.5 percent. Foreign and domestic investors are treated equally under the law, and several state-owned enterprises have been privatized. The financial sector, though small and underdeveloped, is becoming more competitive. Foreign banks’ participation and investment are significant. Despite growing competition, credit prices remain fairly high. The non-banking financial sector remains underdeveloped.