Montenegro, 2022 Fiscal trends and the budget rebalance

Budget revenues in the first three quarters were higher by 8.5% compared to the same period of the previous year, or 5.0% more compared to the plan. The increase in budget revenues was mostly influenced by the increase in VAT, which was 23.8% higher than the planned amount. The growth of prices, but also the growth of disposable income contributed to the growth of this category of budget revenues. Also, an increase in income based on profit tax and an increase in income based on customs due to the increase in imports were recorded. On the other hand, due to the introduction of measures aimed at reducing the effects of inflation, revenues from excise taxes are 6% lower than planned. Changes in tax policy through the implementation of the Europe Now Program, revenues based on personal income tax recorded a decrease of 32.3% compared to the planned amount, while the most significant decrease was recorded in health insurance contributions, which affected the functioning of the entire health system. On the other hand, budget expenditures were lower by 4.5% compared to the plan. However, compared to the first three quarters of 2021, they are 6.3% higher. In addition, the implementation of the capital budget in the observed period was 25% lower than the plan. Therefore, the budget deficit amounted to EUR 36 million, which is 80% less than the plan.

However, although there are favourable trends in public finances compared to the planned ones, in September 2022, the budget rebalance was adopted. The abolition of health insurance contributions, as well as the introduced measures that increased social benefits and transfers, among other factors, influenced the growth of expenditures. Accordingly, the budget rebalancing foresees an increase in expenditures by EUR 191 million (or 7.7%). Also, a decision on additional borrowing of EUR 350 million was adopted.

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