Montenegro Systematic Country Diagnostic Update

Strong boom and bust cycles and Montenegro’s vulnerability to these fluctuations are a critical obstacle to greater prosperity and opportunities for its citizens. Montenegro’s vulnerability to boom-bust cycles was already emphasized as a key development challenge in the previous Systematic Country Diagnostic. Several social and economic indicators improved during the period of high economic growth from 2015 to 2019 supported by a construction boom based on large public and private investments in transport, energy, and tourism. But the temporary construction boom based on few prestigious megaprojects also bolstered Montenegro’s vulnerabilities—it elevated macro-financial imbalances, did not create enough good jobs, discouraged the enforcement of environmental standards when competing with strategic investment, and created a narrow group of primary beneficiaries reinforcing vested interests. The COVID-19 pandemic has exposed and exacerbated these vulnerabilities. As a result of this unsustainable growth strategy, many of the constraints causing Montenegro’s vulnerabilities and hindering sustained progress in shared prosperity remain relevant today and threaten its social contract, as well as its pristine natural assets. Improving economic resilience is key to a sustainable recovery and a virtuous cycle of inclusive growth and poverty reduction in Montenegro.