Montenegro: Selected Issues

IMF Staff Country Reports, May 21, 2018

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This Selected Issues paper analyzes the long-term growth prospects and the output gap in Montenegro.
Historical growth in Montenegro was driven mostly by capital with some contribution from labor, while total factor productivity (TFP) contributed negatively.
In the baseline growth accounting framework with no reforms, employment will likely have a slightly negative contribution because of demographic dynamics unless both labor force participation and unemployment improve significantly.
The highway project will contribute to capital accumulation in the near term, but the contribution from capital accumulation will likely fall despite relatively high investment ratios.
Based on historical performance, the contribution from TFP is likely limited and constitutes the main bottleneck for long-term growth prospects in the no-reform baseline.

Historical drivers:
- Capital: primary driver of historical growth.
- Labor: some positive contribution historically.
- TFP: negative contribution historically.
Baseline projections (no reforms):
- Employment: likely a slightly negative contribution due to demographic dynamics unless labor force participation and unemployment improve significantly.
- Capital accumulation: temporary boost from the highway project; overall contribution likely to fall over time despite relatively high investment ratios.
- TFP: limited contribution expected; main bottleneck for long-term growth.

Subject: Fiscal policy, Fiscal stance, Labor, Labor markets, Output gap, Production, Total factor productivity
Keywords: bank, bank emergency liquidity assistance, child care, CR, Eastern Europe, Europe, expenditure, expenditure elasticity, fiscal policy, Fiscal stance, Global, highway spending, IMF staff estimate, ISCR, Labor markets, minimum wage, Output gap, output gap estimate, Southern Europe, TFP assumption, TFP growth, Total factor productivity, trend revenue