Montenegro is an upper-middle-income country with enormous growth potential. Montenegro has been engaged in activities with the World Bank Group (WBG) since 2001 and became a member in 2007.  While Montenegro’s economy has huge potential, it is hindered by significant structural, economic, and fiscal risks. The global economic crisis exposed some pre-existing fissures in the foundation of Montenegro’s economy and the combination of a series of economic developments has caused a deeper recession in the country than previously anticipated.    

Montenegro’s use of the Euro has helped shield the country from the worst effects of the ongoing financial crisis.  Using the Euro as the sole currency has also required policymakers to adopt sound fiscal policies and a legal and institutional framework that encourages private sector activities, while simultaneously addressing the root causes of fiscal imbalances and macroeconomic misalignments in the country. Annual growth in the period leading up to the global financial crisis averaged almost 9 percent from 2006-08. However, the combined impact of reduced access to credit and loss of export markets, together with eroding confidence and escalating labor conflicts, led to a severe recession in 2009, with the output contraction of 5.7 percent.  Following this decline, economic growth in the country averaged 2.9 percent during 2010-11 before slowing significantly in 2012.  The sluggish recovery of the credit and labor markets in Montenegro continues to constrain economic recovery, although Foreign Direct Investment (FDI) in energy, tourism, and construction is expected to boost growth towards 3 percent over the medium term.

As part of the country’s European integration efforts, Montenegro opened formal membership negotiations with the European Commission (EC) in 2011.  Montenegro was also granted membership status into the World Trade Organization (WTO) in 2011 and in June 2012 the country began accession talks with the European Union (EU).  

Although Montenegro did not join the World Bank Group (WBG) until 2007, a program of lending and analytical work began soon after the State Union of Serbia and Montenegro joined the WBG in 2001.  The Bank’s engagement during the pre-independence period was focused on supporting Montenegro’s efforts to build a market economy and re-establish growth after a period of regional conflict and intense instability, through Analytical and Advisory services (AAA) and new investments – especially in energy and water.

In mid-2007, the WBG and the Government of Montenegro developed the country’s first post-independence Country Partnership Strategy (CPS) covering FY07–FY10. In January 2011, the Board approved a $216 million CPS for FY11–14. This current CPS is client-driven, and reflects Montenegro’s status as an upper-middle-income client with well-defined development priorities. This CPS focuses on two strategic priorities:

i) strengthening institutions and competitiveness in line with EU accession requirements

ii) improving environmental management, including reducing the costs of environmental problems

This strategy is designed to simultaneously help the country recover from the 2009 recession and advance longer-term goals.  The centerpiece of the WBG’s engagement have been three financial-sector and public-sector development policy loans – which aim to support the banking-sector strengthening and fiscal stabilization program, bring regulations in line with EU norms, and encourage resumption of credit growth. New investment lending is also planned for an environmental clean-up project and a regional catastrophe risk insurance facility.  The current portfolio also includes lending in the education, energy, land administration and agriculture sectors.

Overall, over the last 10 years the World Bank has helped improve people's lives in Montenegro by financing 10 projects in the total amount of about $100 million.

Additionally, the International Finance Corporation (IFC) has worked with Montenegro since 2007. The IFC’s current portfolio in Montenegro stands at US$46 million and focuses on increasing access to finance by supporting the development of local financial institutions, particularly ones that lend to small and medium enterprises (SMEs). The IFC’s advisory services in Montenegro aim to improve the investment climate and the performance of private sector companies, and to attract private sector participation in the development of infrastructure projects.

The World Bank Group has worked with Montenegro for more than 10 years, helping the country on its path toward further European integration. Priority areas for this partnership include education, energy, land administration and agriculture.

Some of Montenegro’s development results include:

Education:  In recent years Montenegro has made education a development priority, investing steadily in primary education – including on upgraded infrastructure, new equipment, revised textbooks, and teacher training.  From 2006-10 the Government of Montenegro spent an average of 4.5 percent of Gross Domestic Product (GDP) on public education and succeeded in enrolling almost all (non-Roma) children in primary education.  In addition, the enrollment rate for secondary education, at 87.6 percent, is close to the average for the Organization for Economic Cooperation and Development (OECD).  The school reform process is geared towards ensuring improved quality in learning and academic outcomes for students, starting with elementary schools. Despite these improvements, the higher education system in Montenegro continues to face funding and institutional constraints. As part of the Government’s effort to address these issues Montenegro is currently implementing the Higher Education Research for Innovation and Competitiveness Project (HERIC) – directed at strengthening the quality and relevance of higher education and research in the country by reforming the higher education finance and quality assurance systems and strengthening research and development capabilities.

Energy:  In the early 2000s, Montenegro – much like many of its neighbors – faced growing regional and domestic constraints on energy capacity.  Montenegro was importing 33 percent of its electricity and was facing the increasing possibility of power interruptions. A 2005 report noted that energy consumption in Serbia and Montenegro was twice as high as in Europe. In response to this situation the country began prioritizing investments in new capacity and transmission infrastructure, as well as reforming its domestic energy sector.  Two projects which were developed as part of this response are the Montenegro Energy Efficiency Project (MEEP) – which aims to improve energy efficiency in targeted public buildings and demonstrate a basis for the development of a national sustainable energy-efficiency improvement program – and the Energy Community of Southeast Europe Adaptable Program Loan 3 (ECSEE APL 3) – aimed at improving the efficiency and reliability of the national power system through better supply security and closer integration into regional markets

Agriculture and Rural Development: The agriculture sector is of particular importance in Montenegro, accounting for 10 percent of country’s GDP and five percent of its exports.  Furthermore, more than 50 percent of the poorest households in Montenegro live in rural areas and 70 percent of rural incomes in in the country are derived from agriculture. Despite having abundant water resources, significant agricultural land, a favorable climate, and a strong demand for agricultural products, Montenegro faces structural and institutional challenges that undermine further growth in the sector.  Moreover, the quality and productivity of farming in Montenegro is undermined by limited capital, outdated technology, weak supply chains, underdeveloped standards in agriculture and food security, and inadequate extension services.  The World Bank Group continues to support Montenegro in improving its capacity to deliver, manage, and monitor agriculture assistance.  The Montenegro Institutional Development and Agricultural Strengthening (MIDAS) project – which is designed to improve the delivery of government assistance for sustainable agriculture and rural development in a manner consistent with the European Union’s (EU’s) pre-accession requirements – is part of this support.