PODGORICA, June 27, 2023—The World Bank has released its Country Economic Memorandum for Montenegro: Towards a Sustainable Growth Strategy, emphasizing the need for Montenegro to work towards a more sustainable growth strategy to accelerate its convergence with European Union (EU) living standards. Despite significant progress over the past decade, the average income of Montenegrins is projected to take almost 40 years to reach the average income levels of the EU if it continues with its pre-COVID growth rates.
To overcome this challenge Montenegro requires a new, more sustainable growth strategy based on productivity and human capital gains while preserving natural resources.
“Montenegro's previous growth strategy heavily relied on attracting large investment projects in sectors such as transport, energy, and tourism,” stated Marc Schiffbauer, World Bank Senior Country Economist, and co-author of the report. “Although this led to temporary construction booms, it was often not accompanied by productivity growth, resulting in limited long-term benefits and increased vulnerability to external shocks.”
A more sustainable growth model needs to prioritize three key areas: (i) removing regulatory barriers for firms to enter markets and grow; (ii) leveraging trade to enable firms access to new markets and technology; and (iii) unleashing Montenegro’s full human capital potential by raising equality of opportunity. Promoting competition by eliminating restrictive regulations in service sectors, for example, could raise Montenegro’s annual growth rate by approximately 0.4% which would reduce the time required to reach EU income levels by 13 years.
Moreover, Montenegro's substantial income inequality constrains upward mobility which impedes the productivity of workers. By providing equitable access to quality education and healthcare, irrespective of geography, gender, or socioeconomic background, Montenegro will boost the skills of tomorrow’s workers and tap into the full potential of its entrepreneurial talent.
"By implementing these reforms, Montenegro can expect a thriving private sector, significant job opportunities, and ultimately improved wages and benefits for all its citizens,” said Christopher Sheldon, World Bank Country Manager for Bosnia and Herzegovina and Montenegro. “The World Bank stands ready to assist the Montenegrin government by offering technical expertise and sharing international best practices to effectively design and implement crucial structural reforms.”
Addressing skill shortages, improving infrastructure, and implementing policies more consistently will further raise the economic benefits from tourism – Montenegro's driver of economic growth. Still, tourism requires special attention as its growth is more vulnerable to environmental degradation and climate change. Sustaining its growth thus requires greening the sector.
Finally, to sustain the impact of a new growth strategy, Montenegro should empower public institutions and strengthen the rule of law. Inconsistent enforcement of legal frameworks and high informality pose challenges to economic development and hinder EU integration. Strong public institutions, including a well-equipped competition authority, anti-corruption mechanisms, and effective environmental protection and waste management agencies, are necessary to support the new growth strategy, ensure macroeconomic stability and higher standard of living.