Montenegro’s budget deficit shrank 19.9% y/y to EUR 122mn in January-November 2013, as stronger revenue growth offset a milder increase in expenditures, data from the finance ministry showed. The 11-month budget deficit equalled to 3.5% of the full-year GDP projection, down from 4.6% of GDP a year ago, according to IntelliNews calculations.

Total budget revenue grew 9.9% y/y to EUR 1.1bn in January-November thanks to higher tax collection. VAT revenue climbed 18.3% y/y to EUR 389mn due to the VAT rate hike from 17% to 19% in July. Social contributions, likewise, increased by 8.2% y/y to EUR 338mn.

The 11-month budget expenditures rose by 6% y/y to EUR 1.2bn, lifted by higher current expenses and additional spending related to the bankrupt aluminium smelter KAP. Current expenditures increased by 7.3% y/y to EUR 1.17bn in January-November due to rising interest and public sector transfers. Capital expenditures remained in the red, shrinking 19.8% y/y to EUR 44.4mn in January-November.

The January-November budget gap was by 10% higher than the plan for the period, already exceeding the full-year target of EUR 95mn (2.7% of GDP) due to the payment in August of EUR 103mn of state guarantees on KAP's loans. In response, the government has said the full-year gap might reach EUR 151.9mn, or 4.6% of the GDP.

In 2014 Montenegro hopes to lower its budget deficit to EUR 71mn (1.99% of the full –year GDP forecast) thanks to improved economic activity and higher tax revenue. The economy is projected to grow by 3.6% this year, up from anticipated 2.6% in 2013.