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- GDP (PPP):
- $7.2 billion
- 2.5% growth
- 3.2% 5-year compound annual growth
- $11,545 per capita
- Inflation (CPI):
- FDI Inflow:
Montenegro’s economic freedom score is 62.6, making its economy the 70th freest in the 2013 Index. Its score is essentially the same as last year, with notable gains in the control of public spending, business freedom, and freedom from corruption balanced by declines in labor freedom, monetary freedom, and trade freedom. Montenegro ranks 33rd out of 43 countries in the Europe region, and its overall score is above the world average.
Montenegro’s ongoing transition to a free-market economy has been facilitated by structural reforms and an increasingly vibrant private sector. Along with policies that open the country to global commerce and trade, competitively low flat tax rates and an evolving regulatory system have contributed to a more dynamic and broadly based economic expansion.
Although the regulatory environment is generally consistent with a market economy, bureaucracy curtails entrepreneurial dynamism. The government has pursued reform measures to curb chronically high levels of government spending and improve public-sector efficiency, but overall progress has been sluggish. Despite the relatively well-maintained rule of law, the pace of legislative and judicial reform has been slow, and corruption is still perceived as significant.
The Republic of Montenegro officially declared its independence from Serbia in 2006. It introduced significant privatization and began to use the German mark and then (despite not being a member of the eurozone) the euro as its legal tender. Former Finance Minister Igor Lukšic has been prime minister since 2010, and his center-left Democratic Party of Socialists of Montenegro has dominated politics since 2009. 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 the World Trade Organization’s 154th member in December 2011. Its economy relies heavily on tourism and the export of refined metals. Unprofitable state companies burden public finances, and unemployment is high.
The constitution provides for an independent judiciary, but the system is inefficient and subject to political interference. Infringements of intellectual property rights are fairly widespread. Mistrust of government continues, particularly due to pervasive corruption in the executive and judicial branches. Parliament is investigating allegations of bribery in connection with the 2005 telecommunications privatization.
The 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 24.4 percent of total domestic income. Government spending is equivalent to 44.2 percent of total domestic output. The budget balance has been negative, and public debt has risen to almost 46 percent of GDP. Failing state-owned enterprises have put pressure on fiscal accounts.
Procedures for setting up a business have been streamlined, and the number of licensing requirements has been reduced. However, licensing costs remain burdensome, averaging more than 10 times the level of average annual income. Labor regulations lack flexibility, discouraging more dynamic job creation. Inflationary pressures have been increasing, but the overall monetary situation remains stable.
The trade-weighted average tariff rate is 3.5 percent, but cumbersome non-tariff barriers interfere with trade. Although foreign investment is officially welcome, the investment regime remains too bureaucratic to allow dynamic investment growth. The evolving financial sector has gradually become more competitive and diversified, but non-performing loans have been on the rise.