Country Context



Population, million


GDP, current US$ billion


GDP per capita, current US$


Poverty rate ($5/day 2005PPP terms)


Life Expectancy at birth, years


Montenegro is a small, open economy aspiring to join the EU by 2020. It is also an economy particularly vulnerable to external shocks, as it relies heavily on capital inflows from abroad to stimulate growth.

Because of its size, the already high costs of developing and running national institutions are compounded by a limited capacity to exploit economies of scale in the provision of public goods and services. An EU-compatible legal framework and regulatory bodies, as well as the capacity to absorb EU funds, require that new capacity be built.

At the same time, the economic transition to a market economy requires a reduction in the state’s footprint in the economy. Creating a favorable environment for private sector development entails a restructuring of state-owned enterprises (SOEs) and the rationalization of public spending to reduce state expenditure.

Montenegro started negotiations with the EU in June 2012 and strives to join by 2020, ahead of the other countries in the Western Balkans. Of the 35 negotiation chapters, two have been provisionally closed and 22 have been opened. In the latest European Commission (EC) Progress Report on Montenegro issued in November 2015, the EC notes that the country has made good progress toward meeting opening benchmarks for chapters such as agriculture and rural development, energy, employment and social policy, and regional policy and preparation for structural instruments. The report also notes that particular attention needs to be paid to fulfilling the opening benchmarks in chapters such as competition policy and environment and climate change.


Last Updated: Oct 07, 2016


Number of active projects 4
IBRD net commitments $120 Million

The overarching objective of the WBG’s new Country Partnership Framework covering the period FY2016–20 is to support Montenegro on a path of more sustainable and inclusive growth.

The new framework will selectively support Montenegro’s development agenda, with a particular focus on creating employment and economic opportunities and restoring fiscal balance in order to accelerate long-term inclusive growth.

Montenegro faces the significant challenge of creating good jobs for its people; solving this problem requires action to strengthen the supply of labor as well as increase demand for labor from potential employers. Young job seekers need to be equipped with relevant skills, while less-skilled and more vulnerable segments of the population need access to opportunities and jobs.

Today, Montenegro’s growing fiscal deficits and public debt levels are making it more difficult to finance long-term private sector development at a pace needed for the country to become a prosperous high-income country and move forward with EU accession.

Restoring macroeconomic and fiscal sustainability and strengthening the financial sector will be critical to ensuring a stable macro-environment that stimulates private investment and job creation in the long run. It will also be an opportunity to improve the quality of public spending for more inclusive social and employment services for poor and vulnerable populations, so that all Montenegrin citizens benefit from future development.

Key Engagement

Building on the successes of the original Montenegro Institutional Development and Agriculture Strengthening Project (MIDAS), in September 2016, the World Bank approved an additional financing loan in the amount of €3.0 million to further strengthen rural areas and increase the country’s preparedness for EU accession requirements. This additional financing will allow for an expansion of the institutional capacity building achieved to date in order to manage public funds dedicated to agricultural support.

The original MIDAS project assisted in establishing the capacity of Montenegro to implement an Instrument for Pre-Accession Assistance in Rural Development (IPARD)-compatible system, a paying agency, a farm registry, and a pilot IPARD-like grant scheme supporting investments in agriculture holdings and promoting agri-environmental measures through five rounds of grants.

Around 660 farmers, 60% of whom live in the poorer north, received IPARD-like grants to enhance their agricultural production. The project also supported the strengthening of the country’s Food Safety System, including developing the regulatory framework, building a Border Inspection Post, and upgrading national reference labs.

MIDAS is also an example of excellent collaboration between the Ministry of Agriculture and Rural Development of Montenegro, the EU, and the World Bank.

Last Updated: Oct 07, 2016


Recent Economic Developments

Economic activity slowed down in the first half of 2016 to 1.9% compared to 3.4% a year earlier. This dynamic was driven by slower investment due to the delayed issuance of construction permits for the new highway. High frequency data suggest that growth is expected to recover through the rest of the year. The highway construction has resumed, tourism performed well through the summer, and industrial production and retail pointed to a recovery in consumption. Deflationary pressures that started in late 2015 continued in the first half of 2016, backed by declining oil and food prices, which helped protect household purchasing power, especially of the poor.

Labor markets deteriorated in early 2016 but have since rebounded. With the low tourism season and a hold on highway construction, unemployment was increasing in late 2015 and early 2016, reaching 20% by February 2016 (the highest since March 2007). But as employment in construction and tourism picked up in the second quarter, the unemployment rate dropped to (an albeit still high) 17.8% in July 2016.

The current account deficit (CAD) increased in 2016 despite a solid performance of services. After declining to 13.4% of GDP in 2015, the CAD widened again to 17.4% by June 2016. Foreign direct investment (FDI) declined to 14.1% of GDP, largely due to the telecom company’s dividend payout. Still, at over 81% coverage, FDI has financed most of the growing CAD.

Lending activity increased by 1.8% by July 2016, affected by a pick-up in household loans. Deposits, on the other hand, continued to grow in double digits during the first half of 2016.

The central government cash deficit narrowed in the first half of 2016 to 2.3% of GDP from 8% in 2015, on the back of the delayed execution of highway investment. Yet, a budget revision was announced for the second half of the year in order to accommodate the 1.1% GDP budget shortfall associated with the implementation of benefits for lifetime mothers and pension and public sector wage increases. With the budget shortfall and resumed investments, the cash deficit level may grow to 8.1% of GDP by year-end. In March 2016, a new five-year Eurobond was issued in the amount of €300 million. In addition, as the construction of the highway resumed in the second half of 2016, disbursements from the China Export-Import Bank loan will likely continue. As a result, the public debt is expected to reach 82.6% of GDP by end-2016.

Economic Outlook

Growth for 2016 is expected to reach 3.2% and further pick up in 2017 as the highway construction takes off. Tourism is also expected to continue growing steadily as hotel capacity increases. After the transition government was voted in and an agreement reached between the political parties, parliamentary elections were scheduled for October.

The new Government will need to adopt a credible fiscal consolidation program aiming to enforce the fiscal debt rule at or below 60% of GDP over the medium term.

Growth is likely to slowly contribute to poverty reduction in the immediate future, subject to an employment rebound that includes construction and tourism. The generous lifetime mother benefit adds to beneficiary household income but is fiscally costly and not necessarily targeted at the poor.

International evidence suggests that generous transfers like this are likely to trigger a worsening of an already low female labor participation rate. Poverty measured at US$5/day PPP is expected to decline further to 11.1%, though with high vulnerability to macro risks.

Project Spotlight

Through the Montenegro Energy Efficiency Project (MEEP), the World Bank has supported the Montenegrin Government’s efforts to improve energy-efficiency performance in public sector buildings, energy-efficiency implementation practices and capacity in public institutions, and energy-efficiency service providers in the country.

MEEP is investing in energy saving retrofits in about 27 schools and hospitals. It is insulating roofs and buildings and upgrading heating systems, substations, and networks. Facilities were selected for retrofits based on their energy savings potential, geographic distribution, number of users, and social and demographic impact.

So far, the project has helped with the retrofitting of 20 education and health sector buildings. Social surveys of users show very high end-user satisfaction with the results as well as increased awareness of the importance of energy efficiency.

Technical monitoring and evaluation before and after the investment have verified significant energy savings attributable to energy-efficiency investments in targeted public sector buildings; savings in heating energy have ranged between 30 and 67%, with an average of 46.7%.


Montenegro: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments