Growth is expected to pick up in 2017, driven by higher public investment. A large proportion of this relates to the construction of the highway linking the port of Bar to Boljare, at the border with Serbia. The construction of the electricity power line connecting the country to Italy will continue and is scheduled for completion at the end of 2017. The construction contracts signed in autumn 2016 show that progress is being made regarding the extension of the Pljevlja power station. Public consumption will decline, linked with the concentration of spending on investments. Household consumption will slow, because of a continuing high level of unemployment (estimated above 17% in 2017) and falling purchasing power as inflation increases with the gradual recovery in oil prices. There will be continued investment in the tourist sector, such as the building of a luxury complex in the Bay of Kotor, scheduled for commissioning in summer 2017. Despite the increase in tourist infrastructures, tourism, which accounts for 10% of GDP, could suffer because of the reigning political instability and the deterioration in relations with Russia, home to around a quarter of summer visitors. Aluminum and steel exports by Kombinat Aluminijuma Podgorica (KAP) and the Toscelik steel mill in Nikšić will be disrupted by the restructuring of the mining sector, to such an extent that the contribution from foreign trade to growth is likely to remain negative.

Public deficit and debt will remain high. Tax collection, based on VAT and social contributions, is mediocre, while control over current expenditures, in particular social spending and wages, is not a given, as suggested by the passing of a correcting finance law for 2016. Investment spending will remain high despite the use of private partnerships and concessions. In addition, fiscal exemptions aimed at attracting foreign investment into the tourist sector are expensive. Public debt and the public deficit will continue to grow mainly because of the cost (6% of GDP annually until 2019) of the construction of the Bar-Serb border road and the burgeoning issue of Eurobonds by the government. Finally, the dispute between the government and the Cypriot Central European Aluminum Company (CEAC), owned by a Russian oligarch, both shareholders of KAP when it went bankrupt in 2013, could develop further. Following the rejection in Paris (July 2016) of its compensation claim for being stripped from its assets because it is not really headquartered in Cyprus and, therefore cannot benefit from the Cypriot-Montenegrin treaty on investment protection, CEAC now wants to take the legal proceedings to Cyprus. The current account deficit will increase further in 2017. Foreign trade will continue to run a deficit. The country’s exports, mainly metals and electricity, highly sensitive to the international economic context and weather conditions, will be easily offset by imports of capital goods and food products. In addition, the country’s energy bill will increase as oil prices (the main import) recovers. The balance of services could also suffer with any slowing down in tourist numbers. Foreign investments, 28% of which are Russian, in the tourist and energy sectors, the remittances of workers abroad as well as undeclared capital inflows invested in second homes finance the current account deficit.

The situation surrounding the parliamentary elections in October 2016 was tense. The elections were marked by rumours of threats to Prime Minister Djukanovic’s life and the arrest of Serbian people, claimed to be agents of a third-party foreign country. The Socialist Democratic Party (SDP), which emerged out of the former Communist Party and having dominated the political stage since 1991, won 36 seats out of 91, not enough for an absolute majority. The results are being challenged by the opposition, led by the pro-Serbian Democratic Front. A new government was nevertheless formed in November 2016, with the opposition boycotting the parliamentary vote. There will thus be a coalition between the SDP and the parties representing the ethnic minorities for the coming years. M. Djukanovic announced after the election that he would not be standing again as Prime Minister. Another leading figure in the party, Dusko Markovic, was appointed Prime Minister, although M. Djukanovic retains significant influence as the leader of the SDP. Corporate life is complicated by corruption, the politicization of justice, organized crime, an inaccurate land register and slow administrative procedures. However, EU accession negotiations are leading to improvements in the business climate. In 2017, Montenegro was in 51st place out of 190 in World Bank’s Doing Business survey. The NATO membership process is continuing. This issue is, however, divisive within civil society to the extent that future membership of NATO would provoke the ire of Russia, which has a considerable financial and property presence in the country.