Financial policy is reflected in the following goals of the 2030 Agenda for Sustainable Development:
Goal 8 – Decent work and economic growth
– 8.1. Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7 per cent gross domestic product growth per annum in the least developed countries.
– 8.2. Achieve higher levels of economic productivity through diversification, technological upgrading and innovation, including through a focus on high-value added and labour-intensive sectors.
– 8.3. Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation, and encourage the formalization and growth of micro-, small- and medium-sized enterprises, including through access to financial services.
Goal 9- Industry, innovation and infrastructure
– 9.2. Promote inclusive and sustainable industrialization and, by 2030, significantly raise industry’s share of employment and gross domestic product, in line with national circumstances, and double its share in least developed countries.
– 9.3. Increase the access of small-scale industrial and other enterprises, in particular in developing countries, to financial services, including affordable credit, and their integration into value chains and markets.
Goal 10- Reduced inequalities
– 10.1. By 2030, progressively achieve and sustain income growth of the bottom 40 per cent of the population at a rate higher than the national average.
– 10.2. By 2030, empower and promote the social, economic and political inclusion of all, irrespective of age, sex, disability, race, ethnicity, origin, religion or economic or other status.
– 10.3. Ensure equal opportunity and reduce inequalities of outcome, including by eliminating discriminatory laws, policies and practices and promoting appropriate legislation, policies and action in this regard.
– 10.4. Adopt policies, especially fiscal, wage and social protection policies, and progressively achieve greater equality.
– 10.5. Improve the regulation and monitoring of global financial markets and institutions and strengthen the implementation of such regulations.
– 10.6. Ensure enhanced representation and voice for developing countries in decision-making in global international economic and financial institutions in order to deliver more effective, credible, accountable and legitimate institutions.
– 10.7. Facilitate orderly, safe, regular and responsible migration and mobility of people, including through the implementation of planned and well-managed migration policies.
Goal 17- Partnerships for the goals
– 17.1. Strengthen domestic resource mobilization, including through international support to developing countries, to improve domestic capacity for tax and other revenue collection.
– 17.2. Developed countries to implement fully their official development assistance commitments, including the commitment by many developed countries to achieve the target of 0.7 per cent of gross national income for official development assistance (ODA/GNI) to developing countries and 0.15 to 0.20 per cent of ODA/GNI to least developed countries.
– 17.3. Mobilize additional financial resources for developing countries from multiple sources.
– 17.4. Assist developing countries in attaining long-term debt sustainability through coordinated policies aimed at fostering debt financing, debt relief and debt restructuring, as appropriate, and address the external debt of highly indebted poor countries to reduce debt distress.
– 17.5. Adopt and implement investment promotion regimes for least developed countries.
Finance in the National Sustainable Development Strategy by 2030
The National Sustainable Development Strategy by 2030, as the implementing document for the 2030 Agenda for Sustainable Development in Montenegro, stresses the need to ensure sustainable funding for the environment and natural capital, as well as to develop green economy underpinned by sustainable development. The role of finance is also vital in the area of controlling demographic trends, establishing sound health, education and social security systems. The stress is on managing renewable resources, striving to ensure resource-efficient use of metallic and non-metallic raw materials and mitigate the impact of natural and man-made hazards with an overall aim of increasing competitiveness of Montenegrin economy for sustainable development and green jobs.
Within thematic area 6. Financing of sustainable development, the Ministry of Finance appears as the main implementing agency for the following strategic goals:
6.1 Establish the system for sustainable environmental financing and preservation of natural capital as a component for financing for sustainable development
6.2 Enable the introduction of green economy by mobilizing funds for sustainable development financing
Measure 6.2.5: Manage public debt based on intergenerational equity and sustainable development principles
Candidate countries for EU accession have to meet the so-called Copenhagen criteria defined by the European Council in 1993. The economic criteria imply that candidate countries need to achieve a functioning market economy and have the capacity to cope with competition and market forces. Economic governance is a part of “Fundamentals first” approach as one of 3 main pillars of the 2015 EU Enlargement Policy. In its Montenegro 2019 Report, the EC suggests that in order to improve the functioning of the market economy, Montenegro should further strengthen debt sustainability by broadening the tax base and lowering the public sector wage bill as a percentage of GDP. The Report also takes note that over the previous period priority was given to the fiscal consolidation process, but the deficit target was missed, while public debt reached a new record, primarily due to the financing needs for a large highway project financed by an international loan.
JOINT CONCLUSIONS OF THE ECONOMIC AND FINANCIAL DIALOGUE BETWEEN THE EU AND THE WESTERN BALKANS, 19 MAY 2020 – RECOMMENDATIONS FOR MONTENEGRO
Montenegro is recommended to:
Use fiscal policy to mitigate the COVID-19 crisis-induced impact on growth and employment. While allowing for due reinforcement of healthcare spending during the crisis, reinforce the medium-term sustainability of public finances by limiting overall spending on wages, also by taking concrete steps towards implementing the public administration optimisation plan. Establish a fully-fledged centralised public sector employment payroll system and take steps towards the establishment of a fiscal council in conjunction with the electronic fiscal invoice system. Ensure effective support to the private companies and their employees affected by the crisis, in particular micro, small and medium-sized enterprises, and provide incentives for businesses and employees in the informal economy sector to register and to facilitate their transfer to the formal economy. Take measures to preserve employment including by ensuring short-time work schemes and flexible working arrangements, as well as through increased provision of active labour market policies to facilitate transition to work and support workers at risk of job loss.
CHAPTER 17 Economic and Monetary Policy implies Montenegro’s readiness for membership to the European Monetary Union (EMU), and the use of the single currency (euro) and having single monetary policy managed by the European Central Bank. The emphasis is on reaching a higher level of coordination among EU Member States in economic and fiscal policy-making by limiting public debt and budget deficit. The Maastricht Criteria require a price performance that is sustainable and average inflation not more than 1.5 percentage points above the rate of the three best performing Member States. The emphasis is on the public finance sustainability compared to the reference values and the obligation for the budget deficit not to exceed 3% of GDP measured in market values, while the public debt should not exceed 60% of GDP measured in market values. Acquis chapter 17 focuses on 5 key elements:
– Ensure functional, institutional, financial and personal independence of the Central Bank;
– Prohibition of monetary financing;
– Prohibition of preferential financing of the government by financial institutions;
– Fiscal consolidation and alignment of policies and reporting mechanisms in reference to the most recent EU regulation concerning the fiscal policy convergence for EU Member States preventing macroeconomic imbalances;
– Increased competitiveness of Montenegrin economy with a view to reducing macroeconomic imbalances and achieving full macroeconomic sustainability.
Multiannual Financial Framework 2021-2027 – In May 2018 the EC adopted the first 2020 multiannual financial framework. This will be the first multiannual budget for the EU composed of 27 Member States.
Annual EU budget 2020
The European Semester is a framework for the annual cycle of coordination of economic and employment policies among the EU Member States. It was introduced in 2010 to ensure sustainable public finance (avoid excessive public debt) and prevent macroeconomic imbalances within the EU, support structural reforms, generate jobs and support investments. Each year, the EC performs a detailed analysis of each member state’s budget plans, and the macroeconomic and structural reforms undertaken. Firstly, each November, within the autumn package, the EC sets priorities and financial guidance for the coming year. The following February the EC assesses national reform programmes of the member states in a separate report, i.e. economic and employment policy measures. Each May the EC prepares special recommendations for economic and budget policies of each member state, which are incorporated, between August and October, into the national budgets for the coming year.
The Stability and Growth Pact is a set of rules designed to ensure that countries in the European Union pursue sound public finances and coordinate their fiscal policies.
EU economic governance is a system of procedures established in order to achieve Union’s economic targets, primarily through economic policy coordination and promotion of economic and social progress of the EU and its citizens. The EU needs to establish a more effective economic governance model, particularly in reference to stronger coordination and control of fiscal and macroeconomic policies and setting the framework for financial crisis management.
Finance policy is reflected in a number of umbrella and sector-specific strategy papers. Over the period 2017 – 2020, the priority of the economic, i.e. fiscal policy has been on reinforcing fiscal stability, achieving budget surplus and setting public debt on the declining trajectory, while increasing economic activity and the competitiveness of Montenegrin economy. The Fiscal Strategy 2017-2020, envisaging the fiscal consolidation measures aimed towards continued budget deficit reduction, projected achieving 4.5% GDP budget surplus in 2020. The focus is on further decrease of the public debt as a share of GDP, with 2.6% annual growth rate over the coming four years, and annual increase in employment of 0.9%, as well as the projected average annual salary increase of 1.4%, by attracting foreign direct investments, developing new forms of public-private partnerships, using EU accession funding, favourable loans and national financial resources.
The finance policy focus is on smart and inclusive growth conducive to better quality of life for all citizens, bridging the gap with the EU average. This is particularly stressed in the Medium-term Government Work Programme 2018-2020, priority 2 implying preservation of public finance sustainability, with sound management of taxpayers’ resources by:
Development Directions 2018-2021 focus on removing obstacles for Montenegro’s economic growth and development through a combination of economic policy measures fostering macroeconomic stability, i.e. by increasing financial sector and public finance stability. The document’s main aim is to increase budget revenues, reduce current spending and increase investments in infrastructure, in conjunction with setting the public debt on a downward trajectory and financing debt from the economic growth.
The Economic Reforms Programme (ERP) is the single most important document in the economic dialogue with the European Union and the key strategic document for medium-term macroeconomic and fiscal programming. ERP 2020-2022 strives for a sustainable and inclusive growth conducive to bridging the country’s gap with reference to the EU average and improving the living standards for its citizens. The GDP per capita in current prices is estimated at 7,397 euro, while in terms of purchase power parity it stands at 46% of the EU average. For candidate countries and prospective countries for EU membership, according to Eurostat estimates, the actual individual consumption (AIC) per capita in term of the purchase power ranges between 38% and 57% of the EU average.
Public Finance Management (PFM) Reform Programme sets key reform plans for the upcoming period in the area of the public administration reform aimed at increased accountability and ensuring sound financial management by increasing economy, efficiency and effectiveness in managing public resources.
Taking into account the economic development over the previous four years, the anticipated crisis due to the COVID-19 pandemic and the ensuing adverse economic impacts, the Government’s focus in the public debt management area is to push it below 60% of GDP in 2022; in this respect, a successful issuance of Eurobonds was performed in 2019 gathering funding for servicing a share of the public debt in the following year. At the end of 2019 the public debt stood at 3.83 billion euros, while the 2019 GDP was 4.8 billion euro. In 2020 the public debt accounted to close to 74.8% share of GDP. In 2019 the trading in goods amounted to 3 bn euro, the deficit increased to 2,185 bn euro, with the export accounting for 415 mil euro, and import for 2.6 bn euro. The International Monetary Fund issued its forecast for Montenegrin economy in 2020 stipulating a 9% decline, instead of the expected growth of 3%, due to the impact of the COVID-19 crisis.
In order to pre-empt the drastic impact of the COVID-19 crisis on the rise of the public debt as a share of GDP, the Government prepared two packages of economic support measures for citizens and businesses, involving deferred loan repayment upon the request of individuals and businesses with all banks, micro-financial institutions and the Investment and Development Fund (IDF), deferred payment of payroll taxes and commitments stemming from the tax debt rescheduling programme. The support packages also included deferred payment of rent for property in state ownership, and the measures to limit and control public spending. The second support package targets business and employees involving several thousands of entrepreneurs, micro, small and medium enterprises employing over 100,000 workers, further financial support extended through the IDF and suspension of certain forms of enforced collection to the budget account. The measures also include shorter VAT refund periods, extension of the customs guarantee exposure limit period for deferred payment of customs debt, reducing salaries for public officials of salary grades A and B under the Law on Wages in the Public Sector. As regards social assistance measures, the unemployed persons and pensioners will receive financial assistance. The third package of measures is currently being developed.