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New tax policy aimed at deficit reduction

December 2018.
New tax policy aimed at deficit reduction More on
Montenegro

Montenegro managed to overcome the recession that marked 2012, and has been growing since, with an average GDP growth rate of 3.0% up to 2016.

Positive economic activity continued throughout 2017 with GDP growth of 4.4% in 2017. In the first quarter of 2018, GDP increased by 4.5% comparing the same period in 2017 and 3.9% comparing 4Q17. It was driven by investments (32.1% y/y), industry (40.2% y/y) and solid private consumption. This led to the rising of forecasted GDP to 4.0% in 2018. Another good tourist season is estimated alongside strong investment activity especially in energy sector (wind power) and tobacco industry.

The budget deficit was reduced to 1.6% in 1Q18 as a result of higher tax revenues (10.1 y/y) and is expected to shrink to 3.2% at the end of the year, compared to a 5.5% deficit in 2017. Also, FDIs should be sparked by new privatisations – privatisation of one of the most famous rehabilitation institutes “DR. Simo Milošević” and the Hotel group “Budvanska Rivijera”. Inflation at the end of March 2018 was 2.9% with an average of 2.7% for 1Q18, mostly due to higher global energy prices and excise duty on alcohol and tobacco products. It should land at a similar level (2.8%) at the end of the year as a reflection of increased VAT.

The average net salary in first quarter was EUR 510, which is the same salary as in 1Q17. The economic growth model should remain the same in the next period and should rely mainly on FDIs, as the government expects more interest in tourism projects like Porto Montenegro, Luištica Bay, Beyond Horizon and Portonovi, as well as the privatisation and expansion of the Port of Bar, the reconstruction of Tivat airport, and energy projects – the construction of wind parks.

The Government adopted the Fiscal strategy for the period of 2018 – 2020, which aims at reducing the public debt level and improving opportunities for new borrowings on foreign markets. The strategy is in effect since 1 January 2018 and implies an increase of the VAT standard rate to 21% (from 19%) and excise duties on tobacco, alcohol, sweetened carbonated drinks, while in 2019 an excise on coal should be increased to the EU minimum. Also, a ban on additional public employment and the optimisation of public wages, as a part of the strategy, should have a positive effect on public finances.

Partners

Ebrd

Strategic partner

Karanovic Nikolic

Content partner

Confida

Content partner

I&F McCann

Communications partner