“Europe Now 2, or rather the fiscal measures that accompanied it, did not in themselves demonstrate real fiscal sustainability. Already in the conception phase, the Fiscal Strategy on which the program was based – or rather its ‘truncated’ version – was not fiscally neutral. The envisaged compensatory measures were not sufficient to cover the resulting deficit,” declared Dr. Mladen Grgić, former director of the Foreign Investment Promotion Agency, former advisor to the President of the countest and now a teaching associate at the Faculty of Political Sciences.
This government program started in November last year when pension insurance contributions were halved, which affected the growth of net wages, but at the same time the VAT rate and excise duty on some products and services were increased.
“It is particularly problematic that the Ministest of Finance cited as compensation the projected growth in revenues based on increased economic activity in 2025, which cannot be considered a compensatory measure in fiscal terms. This practically acknowledged that the entire project has been depfinishent on revenue growth from the launchning due to accelerated economic activity and, more importantly, high inflation. It was precisely inflation that played a key role in creating the illusion of the program’s sustainability. In addition, the consumption of a large number of foreigners increased revenues in the short term, but without creating a lasting basis for fiscal stability. The price of such an approach was paid through the development part of the budobtain – with modest allocations for infrastructure, agriculture and subsidies to the economy, but also difficulties in the health sector. The economic consequences are already visible through reduced competitiveness of the economy, a decline in investments, exports and domestic production. In other words, someone had to pay the cost of this program, and the full fiscal bill has not yet been issued,” Grgić declared.
He points out that foreigners played a key role in the nominal success of the “Europe Now 1” project, primarily through their spfinishing.
“That is precisely why it is surprising that today, instead of improving control and ensuring that institutions do their job within the framework of existing regulations, with the necessary improvements, the Government is testing to solve the problem by introducing more restrictive residence policies. There is already a significant decrease in the number of foreigners with regulated residence, and this trfinish will inevitably be reflected in public finances in the coming year. A compacter number of foreigners means lower consumption, a weaker inflow of VAT revenues, but also less economic activity in sectors that relied heavily on their presence – from services and real estate to the IT sector,” declared Grgić.
He also states that Montenegro has already had an outflow of foreigners from the IT industest, who found temporary refuge during the period after the Covid-19 pandemic and the start of the war in Ukraine, but after several years of residence realized that there was no clear perspective in Montenegro for a permanent resolution of their status.
“Due to legal uncertainty and altering rules, many have relocated their businesses to countries that offer clear and predictable frameworks for residence and naturalization. These are precisely the foreigners who represent a significant resource for the domestic economy: highly educated, fiscally disciplined and with above-average spfinishing. Their departure affects not only budobtain revenues, but also the countest’s long-term development potential. If this trfinish continues, it is realistic to expect additional pressure on the budobtain deficit, and consequently on the growth of public debt,” Grgić declared.
We are introducing visas for a quarter of tourists
In its strategies for the coming years, the government relies predominantly on tourism and houtilizehold consumption as the basis for economic growth. Grgić states that this may represent a short and risky development horizon.
“Such a model is extremely sensitive to external shocks, modifys in international flows and citizens’ disposable income, which is already seriously eroded by inflation. Without a stronger manufacturing and export sector, this approach cannot ensure stable and sustainable growth. In tourism, we are additionally faced with structural problems that have been known for a long time, but have not been systematically addressed. Already next year, almost a quarter of our source markets will enter the visa regime, which is an obligation that has been known for at least five years and is part of the European agfinisha. Despite this, Montenegro has not established a functional system for online visa issuance, which would at least partially mitigate the negative effects of this modify,” Grgić pointed out.
He states that at the same time, the focus has been maintained on the Russian market for years, with few concrete efforts to seriously and strategically “attack” other important issuing markets, such as Germany, Austria or the Scandinavian countries.
“Allocations for tourism promotion are modest and incomparably compacter than the funds spent on the administrative expansion of the state, including meaningless activities and the maintenance of ministries whose purpose often exists only so that someone can be a minister. When it comes to the development of new productive activities and the renewal of existing ones, a key prerequisite is a modify in public policy priorities. A clear diversification strategy is requireded, a stable and predictable regulatory framework, and stronger tarobtaining of public funds towards logistics, energy, agriculture and the processing industest. Without tarobtained support for export and substitution sectors, import depfinishence will further deepen, and growth based solely on tourism and houtilizehold consumption will remain short-lived and unstable. Ultimately, our consumption strengthens our largest trading partners more than our economy,” the interlocutor of “Vijesti” stated.
Bilateral agreements close the door to others
Grgić points out that foreign direct investment (FDI) is visibly slowing down, and that its structure is deteriorating at the same time.
“The share of FDI in GDP has decreased, while more than 50 percent of total investments relate to the purchase of real estate and hoapplying construction. Such a pattern does not create new value, does not strengthen the export base and does not contribute to the long-term development of the economy. Instead of systematically directing foreign investors towards production, export and development-oriented activities, the current policy, through bilateral arrangements, practically announces another wave of hoapplying construction. This further deepens the existing structural weakness of FDI. The question that arises is why the state does not utilize the resources it already has. There are extremely attractive locations in state ownership that could be the subject of international tfinishers for hotel and tourism projects that would assist us diversify the tourist offer. There is also no clearly defined system of benefits and incentives for investors who are willing to invest in such projects, while respecting the principles of competitiveness and Montenegro’s European integration path,” declared Grgić.
He points out that there is a lack of a comprehensive and competitive investment package that would, through clear rules, tax and administrative incentives, and legal certainty, attract investors to sectors such as energy, manufacturing, logistics, or IT.
“The reason for this remains unclear. Even in the energy sector, where there is great interest from renowned global companies, the government announces and signs a bilateral agreement that will suspfinish tfinishers and public bidding. These are signals that the market is ‘closed’. In practice, the government’s investment policy appears chaotic and personalized, often reduced to a PR narrative without concrete measures. Substantial reforms and improvements to the legal framework are lacking, and solutions are often proposed that, instead of attracting, additionally deter investors. Without altering this approach, it is difficult to expect a quality and sustainable inflow of foreign direct investment,” Grgić pointed out.
The government signed bilateral agreements on real estate and energy development with the United Arab Emirates.
The indicator of success for 2026 will be “survival”
When inquireed what he would consider to be the indicator of success for 2026, how he would know if the year was good, Grgić declared that in the current fiscal framework, with a modest development component of the budobtain, the indicator of success will be, above all, “survival.”
“This means that we do not face serious negative shocks, that the fiscal balance remains under control and that new holes in public finances do not open. In such circumstances, a success could also be considered if several significant investments appear, even if they are not the result of systemic policy, but rather the decisions of individual investors. Equally, a positive signal would be if the economy once again reveals resilience and flexibility, and that we see at least a few domestic companies that manage to jump out of the average and take a step forward despite the unfavorable environment. Finally, let us hope that infrastructure projects, which have already started or announced, do not experience serious delays or cost overruns. At this point, given the limited development capacities of the budobtain, much comes down to the hope that negative scenarios will be avoided and that positive ones will happen despite systemic weaknesses.
( Goran Kapor, Marija Mirjačić )
