Montenegro government feels backlash over financing plan

Published on 27 Feb, 2017

Montenegro opposition parties are responding negatively to a plan by the government of Prime Minister Dusko Markovic to adopt a draft budget for this year that would include new loans to cover a shortfall of about $481 million.

Much of what critics are protesting in the new budget involves plans to cut back on social support for families.

Some of the austerity measures in the government's plan look similar to proposals put forward by centrist politicians in countries under financial duress. One plan is to decrease government payments to individuals with full-time employment according to their salaries.

Cutting benefits in this way, critics say, will effect more than 20,000 mothers receiving payments for children.

Members of opposition parties argue that companies may not be paying their fair share of taxes under a government dominated by the Democratic Party of Socialists of Montenegro, which is Markovic’s political party and a traditional front-runner in Montenegro’s politics, with 11 consistent election wins.

A Balkan Insight article from late 2016 shows Social Democrat Party official Izet Balic contending that Markovic’s government will only collect only a fraction of unpaid taxes by large companies.

"The fact that they protect the tycoons and those who are not paying taxes is demonstrated by the fact that out of 700 million euros ($741 million) in unpaid taxes, the government plans to collect only 12 million ($12.7 million) next year," Balic said in a press statement.

Other parties are also chiming in. Democratic Front leader Nebojsa Medojevic has questioned the government’s knowledge and capability of working out budget measures without hurting common citizens financially, according Balkan Insight.

Meenal Bhanushali at Aranca spoke to Balkan Business Wire about the interplay of the country's finances and its debate over social spending. Bhanushali has researched equity markets in the Middle East for leading buy- and sell-side research firms, including researching several sectors and tracking macroeconomic developments.

“The government of Montenegro’s budget proposals have been squarely criticized by opposition parties for cutting back on social benefits, while not pursuing higher tax collections from corporates,” Bhanushali said. “Since December 2016, when the government adopted the Draft Law on the budget for 2017, the ongoing criticism has been unabated in spite of the government adopting key measures for adjusting the amount of public debt and budget deficit over the next few years.”

Bhanushali said the government’s plan to borrow the $481 million partially to service existing debt.

“Additionally, the government proposed to abolish extra payments provided to anyone in full-time employment, reduce benefits provided to mothers having three or more children by 25 percent and reduce salaries for most senior state officials by 8 percent, amongst others," she said. "With debt levels already as high as 66.5 percent of GDP, the opposition criticized the draft budget, arguing that additional loans would hurt the economy and the stated benefit cuts will mainly affect the vulnerable.”

Bhanushali said Montenegro’s debt is likely to increase to high levels relative to the country’s GDP and that the nation will face additional “refinancing risk.”

“Taking all this into consideration, the European Commission's Directorate-General for Economic and Financial Affairs cut its projection for Montenegro's 2017 economic growth to 3.4 percent in January of 2017, down 0.5 percent versus its previous forecast provided in October.” Bhanushali said.

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