Economic Achievements and Challenges

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Economic Achievements and Challenges

• Minister of Finance
• Igor Luksic, PhD

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The youngest independent state in the world

• Montenegro is accepted as 192th member of United
  Nations on June 29, 2006 by which it became the
  youngest independent state in the world

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Basic Economic Facts
  2004 2005 2006/6
GDP real growth 2.7 3.7 6.5
Budgetary deficit/surplus - 2.1 - 1.6 0.5
Inflation rate 4.3 1.8 1.6
External public debt 32.7 31.3 27.1
Total public debt 44.8 42.6 36.9
Current account deficit 9.2 8.6 7
Unemployement rate 22.6 18.6 14.7/9
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Public Finance Consolidation

• Decreasing of
• Public expenditures
• Public debt
• Tax burdens
• Budget deficit
• Increasing of
• Tax incomes

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Public Expenditures Reduction

• Public expenditures are reduced from 46.22 in
  2003 on 45.51 in 2004, 45.18 in 2005 and
  estimated 44,64 GDP in 2006 (included
  municipalities expenditures). Estimation for 2007
  is 41GDP (II consolidation level)

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Public Debt Reduction

• Public debt of Montenegro as of 30 September
  2006 amounted to 644.9 mln , domestic debt was
  167.6 mln while foreign debt was 477.3 mln

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Tax Burdens Reducing

• VAT 17 (in 2005 is introduced new rate of 7
  for basic food, books, tourism services)
• PIT (now 15, 19 ad 22) and social contributions
  cut by 10. Further plans are proportional rate
  15 ( 2007, 2008), 12 in 2009 and finally 9.
• Corporate Income Tax - 9
• Health contribution rate is intended to be
  reduced from 13.5 to 9 gradually by 2010

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From budget deficit to surplus

• In 2002 consolidated budget deficit was amounted
  on 4 GDP. According to actual budget execution
  it is estimated to reach surplus of 0,6 GDP by
  the end of 2006
• If we consider longer period of time, starting
  with 2000, budget deficit fell down over 8 GDP.

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StandardPoors Credit Rating

• In November 2005 Montenegro got the grade of S
  P BB positive for long term credit ability.

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Economic Freedom Index

• Annual Report on Economic Freedoms of the Fraser
  Institute for 2006 in cooperation with CEED
  analyzed economic freedoms in Montenegro and
  gives it the score 6,4.
• This score puts Montenegro into the first 65
  countries in the world (nine places above the
  Republic of Croatia).

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Banking Sector Development

• New Law on banks which will prescribe new
  possibilities for foreign investment in banking
  sector.
• Over 95 privatized
• Greenfield investments
• Constant growth of total assets of banks, loans,
  deposits (specially households deposits)
• Decreasing of interest rates

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Basic Legal Framework for Capital Market

• Law on Securities,
• Law on Privatization,
• Law on Foreign Investments,
• Business Organization Law,
• Law on Investments Funds,
• Law on Voluntary Pension Funds
• Law on Takeover of Joint Stock Companies

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Stock Exchange Indexes

• Index NEX20
• - March 2003 1000,
• - July 2006 15.575
• Index NEXPIF
• - March 2003 1000,
• - July 2006 13.827
• Index MOSTE
• - March 2003 100,
• - July 2006 810

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Capital and Current Transaction Law

• Legal tender - Euro
• No restriction regarding capital and current
  transaction with abroad
• Free flow of capital (repatriation of the profit,
  possesion of the current account abroad)
• 382 ml FDI in 2005, 615 per capita, plan for
  next four years is 300 per capita

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Property

• Set of property laws
• Law on restitution adopted on 9. April 2004
• Restitution Fund is established
• 20 municipality commissions started to work
• Commissions submitted to Fund 167 legal decisions
  amounted to 28.5 ml
• Until now owners got 6.17 ml, ¼ in cash and 13.4
  ml in bonds

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Tourism

• The number of tourists in the first seven months
  of 2006 was 17.7 higher than in the same period
  last year, number of foreign tourists rose by
  39.5, and the number of domestic tourists and
  tourists from Serbia by 6.8.
• The registered number of overnight stays in this
  period amounted to 2.8 million, which is 17.6
  more than in the comparative period in 2005, with
  an increase in the number of foreign tourist
  overnight stays of 48.8.

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Challenges

• Preconditions for faster economic growth
• Further fiscal consolidation
• - Public debt decreasing and restructuring to
  be below 30GDP by 2011
• - Compliance with golden rule
• - Balanced budget
• - Public expenditures reducing to
  35GDP/alternatively cuts in current
  expenditure 1pp yearly
• Business barriers reduction
• Pension system reform introducing of mandatory
  individual capital saving
• Labor market deregulation
• Health system reforms voluntary health
  insurance
• Education system reforms
• Infrastructure investments highways, wastewater
  and reconstruction of water supply system

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THANK YOU!
Ministry of Finance of the Republic of
Montenegro 2 Stanka Dragojevica Street Podgorica
81000 Montenegro tel [phone], fax 381
81 224 450 e-mail mf_at_mn.yu www.ministarstvo-finan
sija.vlada.cg.yu