URGENT UPDATE: Montenegro is facing critical economic challenges as it navigates its path toward European Union membership. Noted economist Dr. Željko Bogetić emphasizes the urgent need for the country to transition from a model of consumption and debt to one focused on sustainability, productivity, and a resilient economy.
In a revealing interview with Pobjeda, Bogetić, who served as the chief economist for the World Bank’s regional office, outlined the pressing fiscal and developmental risks Montenegro must confront. He will be a key speaker at the Forum of Excellent Directors (FID) taking place on March 24, 2024, in Podgorica.
“The post-pandemic recovery from 2021 to 2023 was largely a one-off event driven by the reopening of the economy and tourism, alongside significant foreign capital inflows,” Bogetić stated. However, he warns that rising inflation is eroding wage gains, disproportionately affecting the most vulnerable segments of society.
As inflation currently hovers around 4%, key household expenses such as food, housing, and healthcare have surged much higher than the general price level. “Economic policy must not exacerbate inflationary pressures through unnecessary public spending increases,” he cautioned, stressing that stable prices are essential for both household purchasing power and business confidence.
Looking ahead to 2024-2025, Bogetić predicts a “cooling” of the economy with reduced capital inflows and more modest growth rates of around 3% annually. He warns that this slowdown underscores the need for a firmer fiscal approach, as Montenegro grapples with a rising public debt that now stands at around 60% of its GDP.
Bogetić argues that the key to stabilizing Montenegro’s economy lies in implementing robust fiscal policies aimed at achieving budget surpluses during periods of economic growth. “The goal should be to reduce public debt to 40% of GDP or lower, which is crucial given the numerous risks facing the economy, including external shocks and demographic challenges,” he stated.
The economist also highlighted the importance of strengthening institutions and governance quality to attract foreign investments and spur sustainable economic growth. He believes that enhancing institutional frameworks will be vital as Montenegro seeks to align with EU standards.
Montenegro stands at a crossroads, with Bogetić asserting the need to turn the page from a consumption-driven economy to one that prioritizes sustainability and innovation. “The next decade must see Montenegro evolve into a successful EU story, reaching a minimum income level of $14,000 per capita,” he predicted.
As the nation faces these challenges, the focus on effective reforms in public finance and economic policy will be crucial. With pressing issues such as high inflation and public debt looming, Montenegro must act decisively to ensure its economic future and the well-being of its citizens.
Stay tuned for more updates as this story develops, and share your thoughts on how Montenegro can navigate these critical challenges.
