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Quick Facts
- Population:
- GDP (PPP):
- $10.4 billion
- 4.1% growth
- 1.7% 5-year compound annual growth
- $16,643 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
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Montenegro’s economic freedom score is 64.3, making its economy the 68th freest in the 2018 Index. Its overall score has increased by 2.3 points, with a dramatic increase in the score for the fiscal health indicator far outpacing a decline in government integrity. Montenegro is ranked 33rd among 44 countries in the Europe region, and its overall score is below the regional average but above the world average.
Illustrating Montenegro’s radical transition to a market-driven economy is the privatization of 90 percent of its state-owned companies. The main challenges now are strengthening public-sector finances and reining in the large current-account deficit while trying to spur economic growth. Montenegro’s lower rank in the World Bank’s 2017 Ease of Doing Business Index reflects in part a lack of institutional commitment to strong protection of property rights or effective measures against corruption. The court system remains vulnerable to political interference and inefficiency.
Background
Montenegro declared its independence from Serbia in 2006, introduced significant privatization, and adopted the euro despite not being a member of the eurozone. It became the 29th member of NATO in June 2017. Milo Ðukanovic has served as president or prime minister for nearly all of the past 25 years. Although his Democratic Party of Socialists won the most seats in the October 2016 parliamentary elections, it failed to secure a majority, and his longtime ally Duško Markovic became prime minister in a coalition government. Ðukanovic, who may seek the presidency again in 2018, has steered the country in a pro-Western direction and has accused Russia of financing opposition parties. Tourism is a growing industry, contributing jobs and investment.
Property rights are respected, and foreigners may own real property, but trademarks and copyrights are frequently violated. Politicization of the inadequately funded judiciary is a long-standing problem. Cronyism and corruption are pervasive in health care, education, and all levels of government including law enforcement. Impunity, political favoritism, nepotism, and selective prosecution are common.
The personal income and corporate tax rates are a flat 9 percent. Other taxes include value-added and inheritance taxes. The overall tax burden equals 36.3 percent of total domestic income. Over the past three years, government spending has amounted to 46.3 percent of total output (GDP), and budget deficits have averaged 3.6 percent of GDP. Public debt is equivalent to 71.3 percent of GDP.
The business regulatory system is relatively streamlined, but there is room for improvement compared to the systems in many other European countries. The salaries offered by the bloated public sector are higher than those offered by private companies. The government has increased the tariff subsidy for electricity from renewable energy sources.
Trade is extremely important to Montenegro’s economy; the combined value of exports and imports equals 108 percent of GDP. The average applied tariff rate is 2.6 percent. Nontariff barriers impede some trade. In general, government policies do not significantly deter foreign investment. The financial sector has become more competitive and diversified. The effectiveness of a new law on restructuring nonperforming loans has yet to be determined.