Economic Impact and Response by Montenegro Dragana Radevic PhD CEED Montenegro

STABILE POLITICAL ENVIRONMENT Independency gained on May 21, 2006 Ruling Democratic Party of Socialists is dominant political party since 1991 Parliamentary elections held on march 29, 2009 Ruling coalition regained majority votes PROCESS OF INTEGRATION EU Integration NATO membership Final phase WTO accession negotiations

ECONOMIC REFORMS - CONCEPT Openness Monetary stability – EUR as legal tender Low level of business regulation Low level of taxation (CIT – 9%, PIT – 12%) Free regime of capital flows New property schame 85% of the economy privatized (cont. in 2009)

ACHIEVEMENTS Fastest GDP growth in the region: average growth rate in last three years – 9% Standard & Poor’s Credit Rating: since March 2007 – BB+ Leader in Europe by FDI per capita EURO – legal tender – low inflation Significant decrease of unemployment rate Budget surplus for three years continuously Low level of public debt

GLOBAL CRISIS GDP Growth Projections for the Region

RESPONSE TO GLOBAL FINANCIAL CRISIS (1) Prevention measure –Law on measures for protecting of banking system Guaranteed all deposits up to full amount Credit support for banks Guarantees for banks Recapitalization of banks

RESPONSE TO GLOBAL FINANCIAL CRISIS (2) Through the proposed budget for the 2009, package of economic policy measures are adopted that go in the direction of preserving macroeconomic stability, increase productivity and maintain a favorable economic environment

RESPONSE TO GLOBAL FINANCIAL CRISIS (3) Strengthening the investment in infrastructure Increasing support to the development of the private sector Increasing the capital expenditures in the budget Reducing the current, unproductive budget spending, which creates space for the support of citizens and the economy Socio - economic measures (support enterprises and active employment)

RESPONSE TO GLOBAL FINANCIAL CRISIS (4) Macro fiscal scenarios revised in the first quarter of 2009 with growth rates of 0% and -2.5% for 2009 EIB and KfW support for SME’s through credit lines to Montenegrin banks State guarantees

POTENTIAL BUFFERS Potential arrangement with the IMF Financial support from EU funds Other funds from the World Bank

CHALLENGES Sound and consistent fiscal policy despite the impact of global financial crises –Stay in a line with Maastricht criteria –Redirection from current to capital expenditures Privatization Recapitalization of state own utility companies Restructuring inefficient state own companies Business barriers reduction Labor market deregulation Infrastructure investments – highways, wastewater and reconstruction of water supply system

MAIN CHALLENGE How to benefit from crises – chance to run necessary reforms

Dragana Radevic, PhD CEO Thank You!