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Economic Achievements and Challenges

Economic Achievements and Challenges. Minister of Finance Igor Luksic, PhD. 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. Basic Economic Facts.

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Economic Achievements and Challenges

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  1. Economic Achievements and Challenges Minister of Finance Igor Luksic, PhD

  2. 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

  3. Basic Economic Facts

  4. Public Finance Consolidation Decreasing of: • Public expenditures • Public debt • Tax burdens • Budget deficit Increasing of: • Tax incomes

  5. Public Expenditures Reduction Public expenditures are reduced from 46.22% in 2003 on 45.51% in 2004, 45.18% in2005 and estimated 44,64% GDPin 2006 (included municipalities expenditures). Estimation for 2007 is 41%GDP (II consolidation level)

  6. 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 €

  7. 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

  8. From budget deficit to surplus • In 2002 consolidated budget deficitwas 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.

  9. “Standard&Poor’s” Credit Rating In November 2005 Montenegro got the grade of S& P BB positive for long term credit ability.

  10. 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).

  11. 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

  12. 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

  13. 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

  14. 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

  15. 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

  16. 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%.

  17. Challenges Preconditions for faster economic growth: • Further fiscal consolidation: - Public debt decreasing and restructuring to be below 30%GDP by 2011 - Compliance with “golden rule” - Balanced budget - Public expenditures reducing to 35%GDP/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

  18. THANK YOU! Ministry of Finance of the Republic of Montenegro 2 Stanka Dragojevica Street Podgorica 81000 Montenegro tel: +381 81 242 835, fax: +381 81 224 450 e-mail: mf@mn.yu www.ministarstvo-finansija.vlada.cg.yu

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