Trends in public finances and budget rebalancing

In the first quarter, the growth rates of both total revenues and total expenses were recorded. However, due to higher revenue growth, a budget surplus of EUR 65.8 million was achieved. The growth of income was stimulated by the increase in prices in the first quarter, which contributed to the fact that Value added tax (VAT), as the most important category of revenues, recorded a significant growth.
Also, the termination of the decision on the reduction of excise taxes contributed to higher revenues in the observed period, as well as the influx of aid from the EU to overcome the energy crisis. On the other hand, expenditures increased due to the increase in wages in the public sector. In view of these trends, in May the Government adopted a budget rebalance, which foresees the reduction of the deficit that was previously projected in the budget plan. Although favourable trends were achieved in the first quarter, the structure of consumption actually represents a challenge, given that current consumption is significantly higher compared to capital expenditures, thereby losing the effects of investment growth on the economy.
One of the significant challenges in the economic policy of Montenegro is the sustainability of public finances. Although, on the one hand, total budget revenues have increased during this and the previous year, on the other hand, public spending has increased. Positive trends can be observed in the first quarter of this year. However, public spending should be viewed from different aspects, not only from the point of view of the amount. First of all, it is important to look at the structure of consumption. According to the plan adopted at the end of 2022, the budget for 2023 amounted to EUR 2,852.6 million. In this year’s plan, social payments make a many times larger share in total budget expenditures compared to capital expenditures, which can represent a significant disadvantage from the point of view of the development and sustainability of the entire system. Additionally, a deficit of EUR 705.2 million is projected, which will mostly be financed through borrowing in the amount of EUR 599.2 million, which is slightly more than four fifths of the projected deficit. In March of this year, Montenegro took on debt in the amount of EUR 100 million, which, due to the situation on the international market and the state of public finances, represents one of the most expensive debts in the recent period.

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