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The Global Financial Crisis and Fiscal Policy in Montenegro

In: Western Balkan Economies in Transition

Author

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  • Nikola Fabris

    (University of Belgrade)

Abstract

Before the outbreak of the global economic crisis, Montenegro was a low indebted country with a budget surplus and high rates of GDP growth. However, the crisis created a recession, an increase in company insolvency, a deepening of social problems, difficulties in the functioning of the banking system and a decline in lending activity. All this resulted in a substantial drop in public revenues, while at the same time, there was an increased need for fiscal support due to the aggravated social problems. In the first years of the crisis, there was a fiscal space for these needs to be met, and the government reacted by combining both stimulative measures and fiscal consolidation measures. The result was a persistent budget deficit and an increasing public debt ratio. By the end of 2015, net public debt reached 65% of GDP, and a large highway project is expected to induce its further growth until 2018. Since the public debt exceeded the ceiling of 60% of GDP, the law on budget and fiscal responsibility requires the passing of a public finance consolidation plan to bring the public debt back to the prescribed level. Development of a credible consolidation programme and its consistent application must be the fiscal policy priorities in the upcoming period.

Suggested Citation

  • Nikola Fabris, 2019. "The Global Financial Crisis and Fiscal Policy in Montenegro," Societies and Political Orders in Transition, in: Reiner Osbild & Will Bartlett (ed.), Western Balkan Economies in Transition, pages 135-145, Springer.
    • Handle: RePEc:spr:socchp:978-3-319-93665-9_10
    DOI: 10.1007/978-3-319-93665-9_10
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