World Bank Concerned over Montenegrin Government Debt

Jane Armitage, the World Bank Regional Coordinator for Southeast Europe, and Finance Minister Milorad Katnić held a joint press conference to present the World Bank’s report on public expenditure management in Montenegro. In the report, the World Bank expresses concerns regarding Montenegro’s public debt, fiscal deficit, and dependence upon foreign funding.

Montenegro’s public debt is currently too large a percentage of it’s GDP (Gross Domestic Product).  In addition, the fiscal deficit is used to finance wages and pensions instead of being used to finance investments in growth. Most worrying at the current time is Montenegro’s dependence upon foreign lenders at a time when those lenders are becoming increasingly reticent to make sovereign loans to emerging economies within Europe.

The World Bank estimates Montenegro’s public debt in 2010 at 44.1% of GDP.  The International Monetary Fund (IMF) estimates it at 43.5%.  This can be compared to Germany (74.3%), France (84.2%), the United Kingdom (76.7%), the United States (92.7%), Serbia (40.5%), Bosnia (39.0%), Croatia (40.0%), and Slovenia (34.5%).  The more economically advanced nations are able to borrow more and at lower rates, although this may not be good for their long-term economic health.

Montenegro’s fiscal deficit  was only 3.9 percent of GDP in 2010, but the concern was more related to how that money was being spent than on the total amount.  A fiscal deficit caused by investments in infrastructure can eventually pay for itself, but a fiscal deficit spent on government salaries and pensions is just spent.

Finance Minister Milorad Katnić has a plan for gradually reducing the fiscal deficit and, in turn, the public debt.  Mrs. Armitage has expressed her ful support for the plan.  It is now the task of the government to execute this plan successfully.


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