OUTLOOK: 2022 Montenegro

OUTLOOK: 2022 Montenegro
By bne IntelliNews January 10, 2022


Montenegro currently has its first government that is not formed by President Milo Djukanovic’s Democratic Party of Socialists (DPS). Although it came to power in December 2020 with promises significant reforms, the new government has become a hostage in the huge differences between the political parties forming the ruling coalition. It comprises 20 parties, from those with pro-Russian and anti-EU and Nato orientations to civic and pro-Western formations. They were all united by the common desire to oust the DPS, which had ruled the country for over three decades.

Through 2021 it became apparent that the government was unable to carry out significant reforms and, despite initial indications it would be able to fight top-level corruption, so far there have been no serious steps in that direction. The country has been urged to undertake significant reforms to meet the EU’s standards in terms of rule of law in order to advance in the EU membership talks.

It is still not clear how long the government will last. The ruling coalition has been shaken by constant crises and one of the biggest parties — the pro-Russian Democratic Front (DF) — is seeking an early election or change of leadership. However, the rest of the ruling parties oppose these ideas.

The DPS, meanwhile, is waiting and watching for its chance to return to power. Towards the end of 2020, it announced plans for a no-confidence motion against Prime Minister Zdravko Krivokapic's government but gave up the idea in December after finding out it would not gain enough support. Should the balance of power shift, the DPS can be expected to make a fresh attempt to remove Krivokapic. 

Despite its differences, Montenegro’s government has drafted a plan aiming to reform the country and raise the standard of living, which, however, got mixed reactions from international institutions. The Europe Now plan for reforms is ambitious and has highly desirable goals but also carries risks that could be moderated if it is implemented in phases and not in a single step, according to the IMF. 



GDP growth: Montenegro’s economy was the worst hit from the coronavirus pandemic in the emerging Europe region in 2020, declining by more that 15%. Thanks to the strong recovery of the tourism sector — one of the main contributors to GDP — it rebounded significantly in 2021 but has not yet returned to the pre-pandemic level.

GDP jumped by a real 25.8% y/y in the third quarter of 2021, after expanding by 19% y/y in the previous quarter, according to the latest available statistics office data. Montenegro’s GDP growth was much higher than the EU average of 4.1%, according to statistics office data.

Measured at current prices, Montenegro's total economic output stood at €1.52bn, higher than the €1.13bn reading in Q2. At current prices, household consumption stood at €1.58mn. The gross fixed capital formation totalled €292.1mn in the third quarter, while the net export/import was negative €25.2mn.

According to the World Bank, Montenegro's economy is expected to expand by 10.8% in 2021 thanks to the reviving tourism sector. In 2022, the economy is expected to rise by 5.6%.

The European Commission says Montenegro’s economy should post strong growth of 10.7% in 2021 and 6.4% in 2022. In 2023, the economy is expected to grow by 3.2%.

The recovery in 2021 and 2022 is being driven by a surge in private consumption and exports, in particular of tourism and transport services. On the other hand, government consumption growth has eased as the economic support measures are being gradually phased out.


External environment: Montenegro’s current account gap decreased 71.1% y/y to €249.2mn in the first nine months of 2021, according to data from the country’s central bank. Exports went up 32.6% y/y to €371mn in January-September, while imports increased 17% y/y to €1.8bn.

The net primary income account posted a €84mn surplus, jumping 34.7% y/y. Net secondary income increased 52.1% y/y to €281.6mn. The services account surplus increased nearly six times y/y to €796.8mn. The financial account turned to a €77.3mn surplus from a deficit of €728.3mn a year ago. Net foreign direct investment was -€352.2mn versus -€345.4mn a year earlier.

According to the International Monetary Fund (IMF), the country’s current account deficit is seen falling to 21% of GDP in 2021 from 26% a year ago. The gap is set to contract to 16.8% in 2022.

Inflation and monetary policy: In November 2021, Montenegro's consumer prices went up by an annual 4.4%, after rising by 3.8% y/y in October, according to the latest available statistics office data.

Transport costs increased the most in November, by 13.6% y/y, followed by the food and non-alcoholic prices that increased by 5.5% y/y and prices of hotels and restaurants, which were up by 5.1% y/y.

In the first eleven months of 2021, consumer prices were up by 2.2% y/y.

The IMF has projected that Montenegro's consumer prices would rise by 2.9% in 2021 and by 2.1% in 2022.

The country’s central bank forecast that inflation would be between 2% and 4% by the end of 2021 with the most likely scenario being 3% consumer price inflation.

The World Bank’s forecast is for inflation to reach 1.5% in 2021 and hold at the same level in 2022.


Industrial production: Montenegro’s industrial sector was affected by the coronavirus in the second and third quarters of 2020 but started recovering in the last three months of 2020 and this trend continued through 2021.

The industrial output increased 0.4% y/y in July-September 2021 after rising 8.7% y/y in Q2, backed by the manufacturing sector, which increased 13.6% y/y, according to the latest available statistics office data.

Output in the mining and quarrying sector decreased 17.7% y/y in Q3. It was affected by the mining of metal ore (-34.4% y/y) and other metals and mining (-13% y/y), while the mining of coal increased by 10.1% y/y. Production in the utilities sector fell 13.3% y/y in Q3.

Across the main industrial groups, declines were recorded for consumer non-durables (down 12.2% y/y) and energy (down 11.1% y/y), while there was an increase for capital goods (up 110.6% y/y), consumer durables (up 18.1% y/y) and intermediate goods (up 12% y/y).

Through September, industrial output increased 7% y/y, backed by the rise of the utilities sector by 20.3% y/y and of manufacturing by 4.7% y/y.

Industrial sales also increased in Q3, by 22.9% y/y, due to the positive performance of the manufacturing sector, which posted a 38.6% y/y growth. In the mining and quarrying sector sales decreased by 23.7% y/y.

The annual hike in industrial turnover in Q3 was mostly due to higher sales of capital goods (up 73.3% y/y).

In the first nine months of 2021, industrial sales increased 14.8% y/y. In 2020, industrial sales decreased 4.8% y/y.


Real Economy 

Retail: Montenegro’s retail sales suffered from the restrictions imposed by the government to contain the coronavirus in the first three months of 2021, but as the government started gradually easing the restrictions, sales returned to growth in Q2 and improved significantly in Q3 thanks to the strong summer tourist season. In 2022, retail trade is expected to further improve if the coronavirus pandemic allows for good tourist seasons over the summer and winter.

Retail sales measured at constant prices increased 40% year on year in the third quarter of 2021, accelerating from the 19.3% y/y hike in Q2, according to the latest available statistics office data. Measured in current prices, retail trade expanded 45.1% y/y in the third quarter after increasing by 22.5% y/y in the second quarter.

Banks: The banking sector has remained profitable despite the coronacrisis. Its net profit for the first nine months of 2021 stood at €43.6mn, up 141.5% year on year.

In January-September, four of the top performers posted higher profits compared to the same period in the previous year. Profits in the first three months of the year came mainly thanks to the positive result of four banks – Crnogorska Komercijalna Banka, NLB Banka, Erste Bank and Hipotekarna Banka.

Crnogorska Komercijalna Banka ended the period with the highest net profit of €15.52mn, reversing a net loss of €0.6mn a year ago. NLB Banka posted a net profit of €10.15mn in the first nine months, up more than three times y/y. Erste Bank followed with a net profit of €6.95mn, down 51.8% y/y. Hipotekarna Banka ended the period with a net profit of €5.05mn, up 35.3% y/y.

Central bank data also showed that Montenegrin commercial banks' assets increased 13.1% y/y to €5.2bn at the end of October after rising 12.4% y/y the previous month. Bank loans, which accounted for 66.2% of total assets, increased 7.3% y/y in October after moving up by 9% y/y in September, with total stock reaching €3.44bn. The increase reflected a higher rise in lending to companies. Corporate lending went up 4.2% y/y to €1.24bn, while household loans grew 2.8% y/y to €1.45bn at end-October.

Deposits also increased in October, by 22.9% y/y, after rising 20.9% y/y the month before, reaching €4.06bn. Corporate deposits increased 34.1% y/y, after rising 33.1% y/y in September. The total corporate deposit stock reached €1.69bn. Household deposits were 16.7% y/y higher y/y at €1.96bn, after rising by 15% y/y in September.

In September, Montenegrin banks passed the first asset quality review (AQR) carried out by the local central bank in line with EU standards.

The central bank carried out the AQR at all 13 banks operating on the Montenegrin market, using the financial data of banks as of December 31, 2019. According to the AQR, the average solvency coefficient of Montenegro’s banking sector is 16.2%, well above the required 10%.

The AQR was carried out between March 2020 and September 2021. It was complicated by the pandemic and the merger of CKB Bank and Podgoricka Banka in 2019.

However, despite the stable performance, the central bank has projected that non-performing loans in Montenegro could increase as a consequence of the coronacrisis. The share of non-performing loans (NPLs) in Montenegro stood at 5.5% in May, unchanged from the previous two months and compared to the end of 2020. The stock of NPLs reached €183.8mn at end-May, up 1.1% month on month and 13.4% higher year on year.

Industry: Montenegro’s sole aluminium smelter and the country’s largest industrial enterprise KAP completed its shutdown on December 30, 2021, after its owner Uniprom repeatedly warned that rising electricity prices mean it is no longer economically viable. 

The fate of KAP could seriously shake the country’s economy in case no solution is found and the smelter closes permanently. 

The shutdown came after Uniprom failed to reach an agreement on a new electricity price with power company EPCG. At the end of 2021, KAP was paying €45 per MWh plus VAT, while on international markets the electricity price is now around €250 per MWh. However, KAP’s contract with EPCG expired at the end of the year and as 2021 neared its close EPCG requested a price of €183 per MWh as of January 2022 so that it would not suffer financial losses.

Various proposals to keep KAP in operation have been put forward, including for EPCG to take over the smelter for one year or for the government to take it over. However, as yet no solution has been found. According to Deputy Prime Minister Dritan Abazovic, the cabinet may yet agree to a takeover in order to save the 500 jobs and avoid a significant unemployment crisis.

Energy & power: Montenegro’s government has drafted a roadmap to achieve its goals for becoming a carbon neutral country, setting a goal to reduce carbon emissions by 35% by 2030. The country has already reduced emissions by 30%, fulfilling its previous goal set back in 2015.

It hopes that the reduction of carbon emissions can even reach 40% by 2030 thanks to new systemic measures in the forestry and agriculture sectors.

“Investment in clean energy, clean technology and renewed efforts to scale up green infrastructure and development are key focus areas for the government as part of its vision to build a green economy for the future with new industries and jobs. These include support for cross-border flood risk management and the development of energy infrastructure, including construction of new wind farms and smart electricity meters,” the government has said.

The government of Prime Minister Zdravko Krivokapic is also putting efforts into strengthening its Nationally Determined Contribution (NDC), building greater institutional capacity to deliver climate mitigation and adaptation policies through increased transparency and efficient data flow for greenhouse gas reporting.

In 2022, the state-owned power company EPCG is expected to implement two projects to install photovoltaic panels for households and companies as part of its programme to increase renewable energy sources.

The government in Podgorica has also decided to restart the procedure to build the Briska Gora photovoltaic plant, cancelling all works done so far due to technical issues. The original plan was for a 118 MW plant in Briska Gora on 437 hectares but subsequently the area was expanded to 925.25 ha.

Meanwhile, the authorities are expecting results from the exploratory oil and gas offshore drilling in Montenegro carried out by the Eni-Novatek consortium. The consortium started the exploratory drilling in March at a depth of 6,530 metres in the sea between Bar and Ulcinj, and said it would last four and a half to six months.

The drilling should determine the potential of the deposit, while production could start three to five years after the completion of the first drilling. In case of a positive result, the consortium’s next step would be to start developing the drilling site, which would last between two and three years. Oil production could begin in 2024.

Construction: By far the largest ongoing construction project in Montenegro is the construction of the first priority stretch of the Bar-Boljare motorway, which should be completed soon. 

However, in November, the government revealed that the previous cabinet had borrowed significantly more for the construction of the first priority stretch of the Bar-Boljare motorway than the project should have cost.

The motorway was a key project for the previous two governments led by President Milo Djukanovic’s Democratic Party of Socialists (DPS) that ran the country for over three decades before losing power in 2020.

In December, the government revealed plans to invest €400mn in the construction of the second stretch of the motorway in 2023 and 2024. However, it is not yet clear where these funds will come from. The European Commission has said that, in order to approve funding, a cost-benefit analysis should be completed first.

The sum for the construction of the second stretch of the motorway, between Matesevo and Andrijevica, is higher compared to the previous estimations, made in 2018, that it will cost €273mn.

Meanwhile, the construction sector showed signs of recovery from the coronacrisis in 2021 with the number of new building permits jumping 88.6% y/y to 66 in the third quarter of 2021, after falling by 30.1% y/y in the previous quarter, according to the latest available statistics office data. However, the rise was mainly due to the much lower number of building permits issued in 2020. It was backed by the higher number of permits issued to individuals. In quarterly terms, the number of building permits was almost unchanged in 3Q21. 

Major Sectors: The tourism sector, which contributes around one quarter of Montenegro's GDP, is likely to restore further in 2021.

The government is drafting a plan for the sector and hopes it will go beyond the pre-crisis level from 2019 in 2022.

The number of tourists and overnight stays has been rising sharpy since the start of the summer season, reaching around 80% of the pre-pandemic level. The number of tourists in Montenegro stood at 45,665 in October, nearly four times higher compared to the 12,558 visitors a year earlier, according to the latest available statistics office data. Most tourists visited seaside resorts in October (77%), followed by the capital Podgorica (13.7%) and mountain resorts (4.9%).


Budget and debt 

Montenegro’s budget plan for 2022, which is yet to be adopted by parliament, has set the deficit at 3.87% of GDP. The government expects it to reach a record-high €5.3bn. The budget relies on a strong tourist season with revenue set at €1bn, the peak achieved in 2019.

Oveall budget revenue is set at €1.967bn, including tax revenue of €795mn. The spending is set at €2.172bn, including current budget spending of €1.924bn, capital spending of €248mn. The budget deficit is set at €205mn, Finance Minister Milojko Spajic has said. 

Healthcare costs will be increased by 11.6% to €344mn, while the social care spending is set at €677mn, up by €40mn.

The government has introduced a set of tax reforms and higher wages in its programme Europe Now presented in October. The minimal net wage should go up to €450 in 2022 from the current €250 and the average net wage should rise to €700 from €530. Also, the tax burden on employees would be lowered. Currently, the taxes and contributions comprise 39% of the gross wages, while in 2022 they should fall to 21%.

The government has said it intends to increase additionally the wages of medical workers. As of January 2022, salaries of general practitioners will rise to €809 from current €622, those of specialists to €981 from €755, and of senior specialists to €1,070 from €823.

The government also plans to introduce a progressive tax on corporate income and on personal income as part of tax reforms that should stimulate economic growth.

At the same time, the lower income from taxes on wages would be compensated by an increase of the excise duties on tobacco, soft drinks, alcoholic beverages, sugar, cocoa and ice cream. This should bring a total of €22.5mn to the budget income per year.

The profit taxes will also be amended and will depend on the profit. If it is up to €100,000, the tax would be 9%, then it would rise to €9,000 plus 12% on the profit above €100,000 and go further up to €177,000 plus 15% on the profit above €1.5mn. The government expects that this would bring an additional €28mn to the budget per year.

Montenegro’s government debt is expected to fall for the first time since the country declared independence, dropping to 87.37% of GDP in 2021, according to the finance ministry. The debt reached 103% of GDP in 2020 due to the increased costs related to the coronavirus (COVID-19) pandemic and its economic consequences but started falling in 2021 thanks to repayment of debt from the eurobond issued in 2016.

According to Montenegro’s macroeconomic and fiscal policy plan the debt should fall to 71.7% of GDP in 2023. The public debt stood at €4.08bn at the end of June, equalling 87.98% of the projected full-year GDP forecast, finance ministry data showed.

Montenegro’s foreign debt was €3.65bn, slightly up from €3.64bn at end-March, but lower compared to €3.83 at end-December. China’s Exim Bank, which lent the country most of the funds needed for the Smokovac-Matesevo highway, remained the largest creditor at the end of June with the debt totalling €688.09mn. Montenegro asked the EU for help to repay the debt, but managed to make its first repayment without external help. 

The debt to the International Bank for Reconstruction and Development (IBRD) totalled €185.06mn. The debt to the European Investment Bank stood at €105.73mn.



Montenegro’s stock exchange is small and not well developed. Its market capitalisation was €3.14bn at the end of November, while the turnover stood at €5.89mn. As in previous years, in 2022 the bourse is not expected to develop significantly due to the small market in the country of around 620,000 people.