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 ability to absorb EU funds, all require substantial capacity building.Montenegro is a small, open economy aspiring to join the EU by 2025. It is also an economy vulnerable to external shocks, as it relies heavily on capital inflows from abroad to stimulate its growth.
At the same time, the transition to a market economy requires a reduction in the state’s footprint in the economy. Creating a favorable environment for private sector development requires restructuring state-owned enterprises (SOEs) and rationalization of public spending to reduce the cost of the state.
Montenegro started negotiations with the EU in June 2012 and strives to join by 2025, ahead of the other countries in the Western Balkans. Of the 35 negotiations chapters, two have been provision-ally closed and 22 have been opened. In the latest European Commission (EC) Progress Report on Montenegro, the importance of maintaining macroeconomic stability was stressed, noting that the rapidly rising public debt and high fiscal deficits, together with high external imbalances and high unemployment, are of particular concern.
Moreover, the combined effects of large-scale public infrastructure investments and several new expensive social expenditure programs challenge fiscal sustainability.