News archive - Getting economic recovery back-on-course - by Igor Luksic, Vice Prime Minister and Minister of Foreign Affairs and European Integration of Montenegro

Dynamic economic growth has brought Montenegro - and virtually all other Western Balkan countries - more investment, higher living standards, decreased unemployment, and stability of public finance. Montenegro has reduced its public debt to below 50% prior to the crisis. 

Economic growth in the Western Balkan countries, Montenegro included, made during the period of transition to market economy, was abruptly interrupted by the onset of the economic crisis. For Montenegro, a small country which at the time was one of the fastest growing economies, with an economic growth rate of about 8% and highest FDI inflows in Europe, this was a heavy blow. 

But as experience shows, this growth was unsustainable for most countries, based as it was on a large influx of capital which mainly used for consumption instead of for productive investment. In hindsight, the crisis uncovered all the weaknesses of such a model of growth as well as the vulnerability of national economies in the US and in most developed European countries. The crisis also highlighted global economic deficiencies of the real estate sector and banking, and diverted national policies towards finding new models of sustainable economic growth. 

The economic crisis has not only impacted on the current economic situation in the Western Balkans but also on the future growth of the region. Empirical studies show that potential growth rates for Western Balkans vary between 4% and 5%. These figures are not attainable unless external and internal policies are significantly amended. 

The most efficient way to overcome the crisis and to solve the problems of unemployment, poverty, deficit, and public debt is to ensure growth. Attempts at economic recovery that were limited to national measures have previously brought only underdevelopment and pauperisation. At the same time, a focus on fiscal adjustment alone leads to social tensions and, in the long run, cannot boost growth. 

In their quest for new mechanisms to establish sustainable growth, Western Balkan countries have relied on IMF and World Bank policies. This new model envisages important structural reform, improvement of the business environment as well as fiscal and financial stability. Countries have resorted to strengthening capital spending in order to boost overall public consumption. 

I believe Montenegro has made progress in this regard, and this is backed up by the recent World Bank “Doing Business” report. We ensured preconditions for economy's competitiveness, and for the implementation of key development projects in areas such as energy and tourism which will create new jobs and secure growth. 

However, the solution for the future lies in closer regional integration in the Western Balkans. Integration of our countries with the EU aims at providing long-term prosperity by developing institutions and rule of law standards. At the same time, there are plenty of opportunitioes in the region to establish a coordinated approach on major infrastructure projects, to work towards removing business barriers, and to ensure stronger efforts towards ensuring better connectedness. This is a good recipe for sustainable growth, contributes to the removal of boundaries and barriers, and helps citizens as well as the economy. 

Source: Friends of Europe
This issue was discussed at our european policy summit "Western Balkans: Fast lane, slow lane"  on Tuesday 3 December.

Geographical focus
  • Montenegro
  • Western Balkans
Scientifc field / Thematic focus
  • Social Sciences

Entry created by Desiree Pecarz on December 4, 2013
Modified on December 4, 2013