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).