Montenegro Faces Rising Inflation Amid Economic Policy Concerns

The annual inflation rate in Montenegro reached 4.9% in September, according to data from Monstat. This marks a significant increase from 2.6% earlier in the year, highlighting the persistent rise in prices that economic analyst Mirza Mulešković attributes to government financial management practices.

Mulešković explained that such inflationary trends are to be expected given the government’s consumer spending policies. He pointed out that similar patterns occurred during the first and second phases of the Europe Now reforms in 2022. “Whenever we increase wages administratively without considering productivity, it inevitably leads to rising prices,” he stated.

The analyst emphasized that global factors also played a role in the inflation spike in 2022, with some months witnessing annual inflation rates soaring to 20%. Currently, Mulešković observes a shift, noting that the inflation in Montenegro is primarily driven by domestic factors rather than external pressures. “The inflation rate in Europe is around 2.2%, which means we are experiencing double the inflation rate compared to the European average,” he remarked. This disparity underscores the influence of national policies on price increases.

According to the government’s Fiscal Strategy, the average inflation rate for this year is projected to be 4%. Mulešković criticized the measures implemented to raise salaries and taxes, stating they are of an inflationary nature and contribute to price increases. He argues that since the inflation issue arose in 2022, there have been no concrete support measures for the real economy or initiatives to bolster Montenegrin products, which he believes are essential in combating inflation.

When asked about the government’s investment of 3.5 million EUR this year to support local production competitiveness, Mulešković pointed out the inefficiency of current economic management. He noted that Montenegrin dairy farmers are discarding milk due to lack of purchases from dairies amid surplus stock. “We are heavily reliant on imports, and there are still issues in the domestic market,” he said, adding that systemic changes are required to genuinely assist local producers.

Mulešković advocates for a shift in focus towards Montenegrin products, emphasizing technological advancement, increased production capacity, and improved marketing strategies. He highlighted the irony that Montenegrin restaurants often lack local water options despite the country’s high-quality offerings.

He further called for a rationalization of public administration costs, suggesting that budget allocations should prioritize enhancing competitiveness. “There needs to be a return to the real economy and production, which is what generates wealth in society,” Mulešković concluded.

In a recent accountability session, Niko Đeljošaj, the Deputy Prime Minister for Economic Affairs and Minister of Economic Development, characterized inflation in Montenegro as predominantly imported. He cautioned that without increased funding for agriculture and support for domestic competitiveness, the same issues will persist annually. Đeljošaj expressed openness to borrowing for capital projects, noting that timely investments could yield significant returns.

This year, funds for supporting competitiveness have been redirected towards the food industry, with plans to allocate 30 million EUR in the next budget. He stated that the government is working with the Chamber of Commerce and local traders to enhance the visibility of domestic products, agreeing on proposals to reduce VAT on fruits and vegetables.

The interplay of inflation, government policy, and market dynamics remains a critical issue for Montenegro as it navigates economic challenges. As Mulešković warns, while inflation may currently benefit public finances, it poses a long-term threat to consumer purchasing power and economic stability.