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- GDP (PPP):
- $9.4 billion
- 1.1% growth
- 1.5% 5-year compound annual growth
- $14,996 per capita
- Inflation (CPI):
- FDI Inflow:
Structural reforms and an increasingly vibrant private sector have facilitated Montenegro’s ongoing transition to a free-market economy. Openness to global commerce and trade, competitively low flat tax rates, and an evolving regulatory system have encouraged a more dynamic and broadly based economic expansion.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 64.9 (up 0.2 point)
- Economic Freedom Status: Moderately Free
- Global Ranking: 65th
- Regional Ranking: 31st in Europe
- Notable Successes: Trade Freedom and Fiscal Freedom
- Concerns: Management of Government Spending and Corruption
- Overall Score Change Since 2012: +2.4
The government has pursued reforms to curb chronically high levels of spending and improve public-sector efficiency, but progress has been sluggish. Despite the relatively well-maintained rule of law, the pace of legislative and judicial reform has been slow, and corruption is still perceived as significant.
The Republic of Montenegro declared its independence from Serbia in 2006, introduced significant privatization, and adopted the euro as its currency despite not being a member of the eurozone. Milo Ðukanovic, leader of the Coalition for European Montenegro, an alliance between the Democratic Party of Socialists of Montenegro and two other center-left parties, became prime minister in December 2012. Montenegro was invited to launch a NATO Membership Action Plan in 2009 but did not receive an invitation to join the alliance during the 2014 NATO Summit in Wales. It became a candidate for membership in the European Union in 2010 and joined the World Trade Organization in 2011. The economy relies heavily on tourism and exports of refined metals, but real estate is gaining importance. Unprofitable state companies burden public finances, and unemployment is high.
Corruption is a serious problem in Montenegro. Graft and misconduct are widespread in such key areas as health care and public procurement. Organized criminal groups have significant influence in both the public sector and the private sector, and Russian money laundering is significant. Politicization of the judiciary is a long-standing problem. Foreigners may own real property.
The personal income and corporate tax rates are a flat 9 percent. Other taxes include a value-added tax and an inheritance tax. The overall tax burden equals 26 percent of total domestic income. Government spending amounts to 44.8 percent of total domestic output. The budget balance has been negative, and public debt has risen to over 50 percent of GDP. Failing state-owned enterprises have put pressure on fiscal accounts.
Procedures for setting up a business have been streamlined, and the number of licensing requirements has been reduced. Labor regulations lack flexibility, discouraging more dynamic job creation. The sale of the bankrupt state-supported, Communist-era KAP aluminum company was completed in 2014, eliminating one cause of massive government subsidies that distorted the economy in prior years.
Montenegro’s average tariff rate is 2.6 percent. Many state-owned enterprises have been privatized. There is no general screening of foreign investment, but a weak judicial system discourages investors. The financial sector has gradually become more competitive and diversified, but non-performing loans remain a problem. A law on restructuring of NPLs has been adopted, but its effectiveness remains to be seen.