Montenegro will most certainly raise its current VAT rate of 17% - one of the lowest in Europe, to 19% before the beginning of this summer in an attempt to increase budget revenue, deputy PM for economic policy and financial system Vujica Lazovic told TV channel Vijesti on April 18.

When asked whether he believes the hike will positively take place by then, Lazovic answered: “I am afraid it will be so.”

He said the government calculates it will earn an additional EUR 37-40mn annually from the hike and will despite that still keep one of the most competitive VAT rates in Europe.

“The decision has not been taken yet but we will hold talks on it in the coming days in order to settle it on time for the World Bank’s board of directors’ meeting since this is a condition for receiving a loan approval.”

Montenegro has said it hopes to be approved a USD 50mn development loan from the World Bank in May. The loan, which would help the country improve its public debt structure, will be extended at an interest of some 1% and with a longer maturity. The World Bank is reportedly asking Montenegro to hike VAT in order to strengthen additionally its public finances in times of economic downturn.

The latest forecasts of the IMF released earlier in April indicated a worsening in Montenegro’s economic performance. The country’s economy posted zero growth in 2012, while its GDP expansion is seen at only 1.2% this year – down from a previously forecasted 1.5%.

Furthermore, the IMF sees Montenegro’s average inflation slowing down to 2.7% in 2013 from 3.6% in 2012 – but with the announced VAT hike this year’s figure will probably miss the Fund's forecast.