Economic Impact and Response Economic Impact and Response by Montenegroby Montenegro

Dragana Radevic PhD

CEED Montenegro

STABILE POLITICAL ENVIRONMENTSTABILE POLITICAL ENVIRONMENT

• Independency gained on May 21, 2006• Ruling Democratic Party of Socialists is dominant

political party since 1991• Parliamentary elections held on march 29, 2009• Ruling coalition regained majority votes

PROCESS OF INTEGRATIONPROCESS OF INTEGRATION• EU Integration• NATO membership• Final phase WTO accession negotiations

ECONOMIC REFORMS - CONCEPTECONOMIC REFORMS - CONCEPT

• Openness• Monetary stability – EUR as legal tender• Low level of business regulation• Low level of taxation (CIT – 9%, PIT – 12%)• Free regime of capital flows• New property schame• 85% of the economy privatized (cont. in 2009)

ACHIEVEMENTSACHIEVEMENTS

• Fastest GDP growth in the region: average growth rate in last three years – 9%

• Standard & Poor’s Credit Rating: since March 2007 – BB+

• Leader in Europe by FDI per capita• EURO – legal tender – low inflation • Significant decrease of unemployment rate• Budget surplus for three years continuously• Low level of public debt

GLOBAL CRISISGLOBAL CRISIS

GDP Growth Projections for the Region

RESPONSE TO GLOBAL FINANCIAL RESPONSE TO GLOBAL FINANCIAL CRISIS (1)CRISIS (1)

• Prevention measure– Law on measures for protecting of banking

system• Guaranteed all deposits up to full amount• Credit support for banks• Guarantees for banks• Recapitalization of banks

RESPONSE TO GLOBAL FINANCIAL RESPONSE TO GLOBAL FINANCIAL CRISIS (2)CRISIS (2)

• Through the proposed budget for the 2009, package of economic policy measures are adopted that go in the direction of preserving macroeconomic stability, increase productivity and maintain a favorable economic environment

RESPONSE TO GLOBAL FINANCIAL RESPONSE TO GLOBAL FINANCIAL CRISIS (3)CRISIS (3)

• Strengthening the investment in infrastructure• Increasing support to the development of the

private sector• Increasing the capital expenditures in the budget• Reducing the current, unproductive budget

spending, which creates space for the support of citizens and the economy

• Socio - economic measures (support enterprises and active employment)

RESPONSE TO GLOBAL FINANCIAL RESPONSE TO GLOBAL FINANCIAL CRISIS (4)CRISIS (4)

• Macro fiscal scenarios revised in the first quarter of 2009 with growth rates of 0% and -2.5% for 2009

• EIB and KfW support for SME’s through credit lines to Montenegrin banks

• State guarantees

POTENTIAL BUFFERSPOTENTIAL BUFFERS

• Potential arrangement with the IMF• Financial support from EU funds• Other funds from the World Bank

CHALLENGESCHALLENGES

• Sound and consistent fiscal policy despite the impact of global financial crises– Stay in a line with Maastricht criteria– Redirection from current to capital expenditures

• Privatization• Recapitalization of state own utility companies• Restructuring inefficient state own companies• Business barriers reduction• Labor market deregulation• Infrastructure investments – highways, wastewater

and reconstruction of water supply system

MAIN CHALLENGEMAIN CHALLENGE

How to benefit from crises – chance to run necessary reforms

Dragana Radevic, PhDCEO 

Dragana.Radevic@ceed-consulting.comwww.ceed-consulting.com

Thank You!Thank You!