Montenegro’s budget deficit narrowed 21.5% y/y to EUR 59.1mn in January-April 2014, as strong revenue growth offset a softer increase in expenditures, data from the finance ministry showed. The budget deficit equalled to 1.7% of the full-year GDP projection, down from 2.3% a year ago, according to IntelliNews calculations.

The January-April budget gap remains by 43.9% lower that the plan for the period due to lower-than-expected goods and services, employment, social and capital expenditures.

Total budget revenue grew 11.9% y/y to EUR 362.2mn in the first four months of the year thanks to higher tax collection. VAT proceeds climbed 21.6% y/y to EUR 137.3mn due to the VAT rate hike from 17% to 19% in July 2013. They accounted for a 38% share in total budget income. Social contributions, likewise, increased by 11.8% y/y to EUR 107.2mn on the back of higher pension and health contributions. Income from excise duties, on the other hand, shrank 6.1% y/y to EUR 38.4mn in January-April, denting the overall revenue growth.

Budget expenditures grew 5.6% y/y to EUR 409.7mn, supported by higher salaries and wages, social, subsidy expenses and interest payments. Capital expenditures reached EUR 11.7mn in the first four months of the year, up from EUR 10.8mn a year ago, but remained considerably below the plan for the period.

Despite better than expected fiscal performance in both 2013 and in early 2014, Montenegro continues to face considerable fiscal risks related to the construction of the Bar-Boljare highway project. The cost of the first phase of the project is estimated at EUR 800mn or 23% of GDP, according to Standard & Poor’s. The agency has recently said that the potential construction of the highway could reverse recent improvements in fiscal dynamics and cause a significant deterioration in both the government debt ratio and Montenegro's external indicators.

The European Commission also warned earlier in May that the financing the project might put at risk this year’s budget execution.