economic achievements and challenges
DESCRIPTION
Economic Achievements and Challenges. Minister of Finance Igor Luksic, PhD. The youngest independent state in the world. Montenegro is accepted as 192th member of United Nations on June 29, 2006 by which it became the youngest independent state in the world. Basic Economic Facts. - PowerPoint PPT PresentationTRANSCRIPT
Economic Achievements and Challenges
Minister of FinanceIgor Luksic, PhD
The youngest independent state in the world
Montenegro is accepted as 192th member of United Nations on June 29, 2006 by which it became the youngest independent state in the world
Basic Economic Facts
2004 2005 2006/6
GDP real growth 2.7% 3.7% 6.5%Budgetary deficit/surplus - 2.1% - 1.6% 0.5%
Inflation rate 4.3% 1.8% 1.6%
External public debt 32.7% 31.3% 27.1%
Total public debt 44.8% 42.6% 36.9%
Current account deficit 9.2% 8.6% 7%
Unemployement rate 22.6% 18.6% 14.7%/9
Public Finance Consolidation
Decreasing of:
• Public expenditures• Public debt• Tax burdens• Budget deficit
Increasing of:• Tax incomes
43.544
44.545
45.546
46.5
2003 2004 2005 2006
public expendiures in %
88.39
49.69 48.4942.79
36.9
010
2030
4050
6070
8090
100
2002 2003 2004 2005 2006/6
public debt in % corporate tax rates
0.05.0
10.015.020.025.030.035.0
B&
H
Est
Slo
Che
ch Cro
Alb
Slo
vaki
a
Hun
Rum
Bul
g
Lith
u
Irle
and
Ser
b
Mon
tene
gro
budget deficit/surplus
-3.5
-3
-2.5
-2
-1.5-1
-0.5
0
0.5
1
2003 2004 2005 2006p
Public Expenditures Reduction
Public expenditures are reduced from 46.22% in 2003 on 45.51% in 2004, 45.18% in 2005 and estimated 44,64% GDP in 2006 (included municipalities expenditures). Estimation for 2007 is 41%GDP (II consolidation level)
43.5
44
44.5
45
45.5
46
46.5
2003 2004 2005 2006
public expendiures in %GDP
Public Debt Reduction
Public debt of Montenegro as of 30 September 2006 amounted to 644.9 mln €, domestic debt was 167.6 mln € while foreign debt was 477.3 mln €
88.39
49.69 48.4942.79
36.930
40
50
60
70
80
90
100
2002 2003 2004 2005 2006/6
public debt in %GDP
Tax Burdens Reducing
• VAT – 17% (in 2005 is introduced new rate of 7% for basic food, books, tourism services)
• PIT (now 15, 19 ad 22%) and social contributions cut by 10%. Further plans are: proportional rate 15% ( 2007, 2008), 12% in 2009 and finally 9%.
• Corporate Income Tax - 9%• Health contribution rate is intended to be reduced from 13.5% to 9%
gradually by 2010
VAT rates
0
5
1015
20
25
30corporate tax rates
05
101520253035
From budget deficit to surplus
• In 2002 consolidated budget deficit was amounted on 4% GDP. According to actual budget execution it is estimated to reach surplus of 0,6% GDP by the end of 2006
• If we consider longer period of time, starting with 2000, budget deficit fell down over 8% GDP.
budget deficit/surplus in %GDP-3.5
-3
-2.5
-2
-1.5-1
-0.5
0
0.5
1
2003 2004 2005 2006p
“Standard&Poor’s” Credit Rating
In November 2005 Montenegro got the grade of S& P BB positive for long term credit ability.
Economic Freedom Index
• Annual Report on Economic Freedoms of the Fraser Institute for 2006 in cooperation with CEED analyzed economic freedoms in Montenegro and gives it the score 6,4.
• This score puts Montenegro into the first 65 countries in the world (nine places above the Republic of Croatia).
Banking Sector Development
New Law on banks which will prescribe new possibilities for foreign investment in banking sector.
Over 95% privatized Greenfield investments Constant growth of total
assets of banks, loans, deposits (specially households deposits)
Decreasing of interest rates
0
100
200
300
400
500
600
700
2002 2003 2004 2005 2006/6
credits deposits
10
10.5
11
11.5
12
12.5
2005Sep 2005Oct 2005Nov 2005Dec
AWIR nominal AWIR effective
Basic Legal Framework for Capital Market
• Law on Securities,• Law on Privatization,• Law on Foreign Investments,• Business Organization Law,• Law on Investments Funds,• Law on Voluntary Pension Funds• Law on Takeover of Joint Stock Companies
Stock Exchange Indexes
• Index NEX20:
- March 2003 – 1000,
- July 2006 – 15.575
• Index NEXPIF:
- March 2003 – 1000,
- July 2006 – 13.827
• Index MOSTE:
- March 2003 – 100,
- July 2006 – 810
0100200300400500600700800900
Moste
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
Nex 20
Nex PIF
Capital and Current Transaction Law
• Legal tender - Euro• No restriction regarding capital and current transaction with abroad• Free flow of capital (repatriation of the profit, possesion of the current account
abroad)• 382 ml € FDI in 2005, 615 € per capita, plan for next four years is 300 per capita
87 38 50
375
0
200
400
600
2002 2003 2004 2005
FDI in mil
Property
• Set of property laws• Law on restitution adopted on 9. April 2004• Restitution Fund is established• 20 municipality commissions started to work• Commissions submitted to Fund 167 legal decisions
amounted to 28.5 ml • Until now owners got 6.17 ml, ¼ in cash and 13.4 ml in
bonds
Tourism
• The number of tourists in the first seven months of 2006 was 17.7% higher than in the same period last year, number of foreign tourists rose by 39.5%, and the number of domestic tourists and tourists from Serbia by 6.8%.
• The registered number of overnight stays in this period amounted to 2.8 million, which is 17.6% more than in the comparative period in 2005, with an increase in the number of foreign tourist overnight stays of 48.8%.
0
2
4
6
8
2003 2004 2005
overnight stays
Challenges
Preconditions for faster economic growth:
• Further fiscal consolidation:- Public debt decreasing and restructuring to be below 30%GDP by
2011- Compliance with “golden rule”- Balanced budget- Public expenditures reducing to 35%GDP/alternatively cuts in current
expenditure 1pp yearly• Business barriers reduction• Pension system reform – introducing of mandatory individual capital saving• Labor market deregulation• Health system reforms – voluntary health insurance• Education system reforms• Infrastructure investments – highways, wastewater and reconstruction of
water supply system
Ministry of Finance of the Republic of Montenegro2 Stanka Dragojevica Street
Podgorica 81000Montenegro
tel: +381 81 242 835, fax: +381 81 224 450e-mail: [email protected]
www.ministarstvo-finansija.vlada.cg.yu
THANK YOU!