Transcript Public Expenditures Reduction

Economic Achievements
and Challenges
Minister of Finance
Igor Luksic, PhD
The youngest independent state in the world
Montenegro is accepted as
192th member of United Nations
on June 29, 2006 by which it
became the youngest
independent state in the world
Basic Economic Facts
2004
2005
2006/6
GDP real growth
Budgetary deficit/surplus
Inflation rate
External public debt
2.7%
- 2.1%
4.3%
32.7%
3.7%
- 1.6%
1.8%
31.3%
6.5%
0.5%
1.6%
27.1%
Total public debt
Current account deficit
44.8%
9.2%
42.6%
8.6%
36.9%
7%
Unemployement rate
22.6%
18.6%
14.7%/9
Public Finance Consolidation
46.5
46
45.5
45
44.5
44
43.5
Decreasing of:
Public expenditures
Public debt
Tax burdens
Budget deficit
2003
2004
2005
2006/ 6
1
0.5
0
-0.5
-1
-1.5
-2
-2.5
-3
-3.5
2003
2004
2005
2006p
budget deficit/surplus
Montenegro
2004
Serb
2003
Irleand
2002
Lithu
0
Bulg
10
Rum
20
Hun
36.9
30
Slovakia
42.79
Alb
48.49
Cro
49.69
40
corporate tax rates
Chech
public debt in %
70
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Slo
88.39
80
Est
90
50
• Tax incomes
2006
100
60
Increasing of:
2005
B&H
•
•
•
•
public expendiures in %
Public Expenditures Reduction
Public expenditures are reduced from 46.22% in 2003 on 45.51% in
2004, 45.18% in 2005 and estimated 44,64% GDP in 2006 (included
municipalities expenditures). Estimation for 2007 is 41%GDP (II
consolidation level)
46.5
46
45.5
45
44.5
44
43.5
2003
2004
2005
public expendiures in %GDP
2006
Public Debt Reduction
Public debt of Montenegro as of 30 September 2006 amounted to 644.9 mln
€, domestic debt was 167.6 mln € while foreign debt was 477.3 mln €
100
90
88.39
80
public debt in %GDP
70
60
50
49.69
48.49
42.79
40
36.9
30
2002
2003
2004
2005
2006/6
Tax Burdens Reducing
VAT – 17% (in 2005 is introduced new rate of 7% for basic food, books,
tourism services)
PIT (now 15, 19 ad 22%) and social contributions cut by 10%. Further
plans are: proportional rate 15% ( 2007, 2008), 12% in 2009 and finally 9%.
Corporate Income Tax - 9%
Health contribution rate is intended to be reduced from 13.5% to 9%
gradually by 2010
30
25
20
15
10
5
0
Bi
Mo
nte H
ne
gro
ov
ak
ia
Se
rb
Es
to
ov
Sl
Sl
Al
b
VAT rates
Ch
ez
Irle
an
d
corporate tax rates
B&
H
Es
t
S lo
Ch
ec
h
Cr
o
A
S lo lb
va
kia
Hu
n
Ru
m
Bu
lg
Lit
h
Irle u
an
d
Mo S e
nte rb
ne
gro
35
30
25
20
15
10
5
0
Cr
o
•
•
Hu
n
•
Lit
hu
•
From budget deficit to surplus
• In 2002 consolidated budget deficit was amounted on 4% GDP.
According to actual budget execution it is estimated to reach
surplus of 0,6% GDP by the end of 2006
• If we consider longer period of time, starting with 2000, budget
deficit fell down over 8% GDP.
1
0.5
0
-0.5
-1
-1.5
-2
-2.5
-3
-3.5
2003
2004
2005
2006p
budget deficit/surplus in %GDP
“Standard&Poor’s” Credit Rating
In November 2005 Montenegro got the grade of S& P BB positive
for long term credit ability.
Economic Freedom Index
•
•
Annual Report on Economic
Freedoms of the Fraser Institute
for 2006 in cooperation with
CEED
analyzed
economic
freedoms in Montenegro and
gives it the score 6,4.
This score puts Montenegro into
the first 65 countries in the
world (nine places above the
Republic of Croatia).
Banking Sector Development
700
 New Law on banks which will
prescribe new possibilities for
foreign investment in banking
sector.
 Over 95% privatized
 Greenfield investments
 Constant growth of total
assets of banks, loans,
deposits (specially households
deposits)
 Decreasing of interest rates
600
500
400
300
200
100
0
2002
2003
2004
credits
2005
2006/6
deposits
12.5
12
11.5
11
10.5
10
2005Sep
2005Oct
AWIR nominal
2005Nov
AWIR effective
2005Dec
Basic Legal Framework for Capital Market
•
•
•
•
•
•
•
Law on Securities,
Law on Privatization,
Law on Foreign Investments,
Business Organization Law,
Law on Investments Funds,
Law on Voluntary Pension Funds
Law on Takeover of Joint Stock Companies
Stock Exchange Indexes
Ju
l
Ja
n
Fe ua r
br
ua
r
M
ar
t
Ap
ril
M
aj
Ju
n
Ju
A
l
Se vgu
pt
em st
O bar
k
No to ba
ve r
De mb
ce a r
m
b
Ja a r
nu
Fe a r
br
ua
r
M
ar
t
Ap
ril
M
aj
Ju
n
18000
16000
Nex 20
Nex PIF
14000
12000
10000
8000
6000
4000
2000
Se
l
Ju
n
Ju
M
aj
l
gu
st
pt
em
ba
Ok r
to
N o bar
ve
m
ba
De
r
ce
m
ba
r
Ja
nu
ar
Fe
br
ua
r
M
ar
t
Ap
ril
Ju
Av
n
Ju
M
aj
r
M
ar
t
Ap
ril
br
ua
r
0
Fe
•
Moste
ua
•
Index NEX20:
- March 2003 – 1000,
- July 2006 – 15.575
Index NEXPIF:
- March 2003 – 1000,
- July 2006 – 13.827
Index MOSTE:
- March 2003 – 100,
- July 2006 – 810
Ja
n
•
900
800
700
600
500
400
300
200
100
0
Capital and Current Transaction Law
• Legal tender - Euro
• No restriction regarding capital and current transaction with abroad
• Free flow of capital (repatriation of the profit, possesion of the current
account abroad)
• 382 ml € FDI in 2005, 615 € per capita, plan for next four years is 300
per capita
600
FDI in mil
400
375
200
87
38
50
2002
2003
2004
0
2005
Property
•
•
•
•
•
Set of property laws
Law on restitution adopted on 9. April 2004
Restitution Fund is established
20 municipality commissions started to work
Commissions submitted to Fund 167 legal decisions
amounted to 28.5 ml
• Until now owners got 6.17 ml, ¼ in cash and 13.4 ml in
bonds
Tourism
•
•
The number of tourists in the first seven months of 2006 was 17.7% higher
than in the same period last year, number of foreign tourists rose by
39.5%, and the number of domestic tourists and tourists from Serbia by
6.8%.
The registered number of overnight stays in this period amounted to 2.8
million, which is 17.6% more than in the comparative period in 2005, with
an increase in the number of foreign tourist overnight stays of 48.8%.
8
overnight stays
6
4
2
0
2003
2004
2005
Challenges
Preconditions for faster economic growth:
•
•
•
•
•
•
•
Further fiscal consolidation:
- Public debt decreasing and restructuring to be below 30%GDP by 2011
- Compliance with “golden rule”
- Balanced budget
- Public expenditures reducing to 35%GDP/alternatively cuts in current
expenditure 1pp yearly
Business barriers reduction
Pension system reform – introducing of mandatory individual capital saving
Labor market deregulation
Health system reforms – voluntary health insurance
Education system reforms
Infrastructure investments – highways, wastewater and reconstruction of water
supply system
THANK YOU!
Ministry of Finance of the Republic of Montenegro
2 Stanka Dragojevica Street
Podgorica 81000
Montenegro
tel: +381 81 242 835, fax: +381 81 224 450
e-mail: [email protected]
www.ministarstvo-finansija.vlada.cg.yu