Montenegro: Risk Assessment

Country Rating1

Rating: C

Business Climate Rating1

Rating: C

Risk Assessment2

Growth still weakened by European difficulties

The economic slowdown recorded in 2012 will continue to be felt in 2013, mainly because of the slump in the euro-zone on which the country depends very strongly for its trade, its tourism and its foreign direct investment. The aluminum industry, which generates 40% of exports, was hit by the fall in world prices and the drop in European demand. Growth is expected to remain constricted in 2013, with the persistence of European difficulties. This particularly affects incoming foreign investments on which the country greatly depends, so weak are its domestic sources of finance. Indeed, foreign direct investment inflows (most of them intended for the tourism sector) account for over 10% of GDP, one of the highest ratios in Europe. Growth will nevertheless be sustained by the expected rise in aluminum prices. The recent exponential development of tourism will continue with the perpetuation of tax incentives and the growth of investment in tourism facilities on the Adriatic coast. Inflation will fall slightly in 2013 on the back of lower energy and food prices (given that the country is a net importer of these commodities).

Current account deficit still important, government deficit falling

The country is undergoing fiscal consolidation, which will continue in 2013. The austerity measures already adopted have enabled a cut in expenditures, but the sluggishness of the economy has reduced revenues. The slow economic recovery expected in 2013 should result in more significant VAT receipts (the first source of fiscal revenues). The issuance of new bonds is possible, after the 2012 one. In case of more marked difficulties, aid from the IMF (in addition to the loans already granted by the World Bank in 2011-12) is not excluded. There are fewer privatization program (post, real estate, aeronautics), as state owned enterprises find it difficult to attract private investors. They still fear the high level of corruption (the highest in former Yugoslavia), transportation facilities deficiencies and the size of the black economy. Moreover, in 2012, the government takeover of the country’s biggest employer, the heavily indebted aluminum company, KAP, will be a further burden on the budget in 2013. Finally, while the growing level of public debt remains moderate and below the regional average; foreign debt (essentially private and now superior to GDP) represents an obvious risk, as foreign exchange reserves are insufficient to cover a possible liquidity crisis. This is exacerbated by the shortcomings of the banking sector, notably supervision.

Meanwhile, the current account deficit hardly increased in 2012 because of the persistent difficulties of the country’s trading partners (in particular Greece, the third export partner in 2011). The deficit is expected to remain stable in 2013 with imports limited by economic difficulties and exports, notably of metals, recovering. The weakening of the euro led to a geographic shift in 2012: the three biggest export markets were the three former Yugoslav republics. The EU is, however, expected to be the biggest market again in 2013.  The balance of services (17% of GDP) will be broadly in surplus due to good tourism revenues, but insufficient to offset the trade deficit.

EU accession process now well underway

Official discussions concerning Montenegro’s EU membership began in June 2012. They had previously come up against European fears about corruption and organized crime in the country, fears which have now dissipated with the progress recently achieved. The prospect of accession enabled the Democratic Party of Socialists (DPS), currently in power, to win the anticipated parliamentary elections in October 2012. It had, however, to contend with demonstrations at the beginning of 2012 after the announcement of electricity price rises. The coming presidential election in April 2013 is expected to confirm the domination of the DPS. A return to the office of the former President, M. Djukanovic,(a figure of the independence movement (but suspected of illegal trafficking and corruption) is forecast. Nevertheless, the country is expected to maintain its efforts to improve the business climate and to fight corruption in order to continue its talks with the EU. The membership is anticipated at the earliest in 2020.


  • Mining resources and tourism potential
  • Talks concerning membership of the European Union begun in June 2012
  • Indicators of governance above the regional average, stable political system


  • Dependence on exported raw materials prices (aluminium)
  • Commercial and financial dependence on the European Union
  • Current account deficit still too high
  • Excessive private foreign debt

1Country and Business Climate Ratings courtesy of Coface (08/2013)
2Risk Assessment and methodology courtesy of Coface (08/2013).