Economic Policy of Montenegro for 2005
REPUBLIC OF MONTENEGRO GOVERNMENT OF THE REPUBLIC OF MONTENEGRO
ECONOMIC POLICY OF MONTENEGRO FOR 2005
Podgorica, february 2005
2 Economic Policy of Montenegro for 2005
TABLE OF CONTENTS
BASIC STARTING POINTS 3
1. GOAL AND TASKS OF THE ECONOMIC POLICY FOR 2005 4 1.1. Economic Policy Goal in 2005 4 1.2. Economic Policy Tasks in 2005 4
2. MACROECONOMIC POLICIES 5 2.1 Monetary Policy 5 2.2. Cooperation with International Financial Organizations 5 2.3. Fiscal Policy 6 2.4. Restructuring, Privatization and Investments 7 2.5. Prices 8 2.6. Social Policy 8 2.7. Employment 8 2.8. Wage and Pension Policy 9 2.9 Development Policy 9 2.9.1 Regional Development 9 2.9.2 Development of Entrepreneurship and Small and Medium Size Enterprises 10 2.9.3 Human Resources Policy 11 2.9.4. Development of IT Society 11 2.10. Foreign Economic Relations 11 2.11. European Integrations 11 2.12 Environment Protection and Improvement 12 2.13. Spatial Planning 12 2.14. Statistics 12
3. SECTORAL POLICIES 13 3.1 Manufacturing Industry, Energy and Mining 13 3.2 Tourism 13 3.3 Agriculture, Forestry and Water Supply 14 3.4 Construction, Housing and Public Utility Sector 15 3.5 Maritime Industry and Transport 16 3.6. Telecommunications and Postal Services 17 3.7 Trade 17
4 SOCIAL ACTIVITIES 18
5. GROSS DOMESTIC PRODUCT 20
3 Economic Policy of Montenegro for 2005
BASIC STARTING POINTS
Basic goal of Montenegro is to join the European Union and euro-atlantic integrations.
In the area of reforms and institutional strengthening of the system, Montenegro has three global objectives:
1. To achieve quick, sustainable industrial development, by increasing economic freedoms, strengthening influence of private sector and achieving higher level of macro-economic stability while gradually reducing the dependence on foreign aid;
2. To develop institutional and legal framework compatible with international standards and norms, based on rule of law;
3. To achieve growth of living standard of Montenegrin citizens, while establishing an adequate system of social and health protection and education system.
The Economic Reform Agenda, as well as specific agendas of administrative and educational reform in Montenegro, represent framework for the Economic Policy for 2005. The starting projection for the Economic Policy for 2005 directly relies on:
Results of economic reforms accomplished in 2003 and 2004;
Achieved level of transformation of the institutional framework in Montenegro;
Completed preparatory activities for integration of Montenegro in the European Union (EU) and accession to World Trade Organization (WTO);
4 Economic Policy of Montenegro for 2005
1. GOAL AND TASKS OF THE ECONOMIC POLICY FOR 2005
1.1 Economic Policy Goal in 2005
Primary economic policy goal in 2005 is growth of the gross domestic product. It is projected that the real growth of GDP will be 4.1% (the nominal growth of 7.1%) to reach €1,580 million € in absolute terms.
1.2 Economic Policy Tasks in 2005
Basic economic policy tasks are as follows:
Further development of private entrepreneurship initiative;
Investments growth: from the present €60 million to €150 million;
Reduction of number of employees, in accordance with the Economic Reform Agenda, by 5,000 persons;
Reduction of budget deficit from the present 2.9% to 2.17% participation in gross domestic product;
Reduction of deficit in balance of goods and services from € 290 million to € 260 million; Reduction of public expenditure from the present 48.60% of GBP to 45.95% of GDP;
Keeping the inflation at the level to 3%.
5 Economic Policy of Montenegro for 2005 2. MACROECONOMIC POLICIES 2.1 Monetary Policy Monetary policy will be targeted towards: (1) strengthening of financial discipline and budget efficiency and (2) maintenance and gradual growth of money supply. Supervision of banking system will be continued under further improvement of international standards implementation. Active policy of mandatory reserve will be kept. Conditions will be created for broadening of range of banking services and opening of new branches, particularly in those parts of the Republic where there is a real need for them as the support to the economy, particularly tourism. Crediting of small and medium size enterprises will be supported through strengthening of the present programs of 14 credit lines with mediation of commercial banks. The implementation of the Frozen Foreign Exchange Deposit Disbursement Program will be continued by implementation of the Law on Foreign Debt and Frozen Foreign Exchange Deposits of Citizens. In 2005, the amount of €8.7 million will be repaid. The process of privatization of Podgoricka Bank will be continued as well as the sale of state holdings in other banks. Negotiations with the National Bank of Serbia on finding the model for establishing of direct payment operations between Serbia and Montenegro will be continued. Adoption of new laws will ensure full institutional framework for the financial markets (Insurance Law, Law on Current and Capital International Payment Operations, Law on Bill of Exchange, amendments to Law on Securities). Conditions for development of securities market will be created through the capital market development in order to provide additional sources for funding businesses, primarily manufacturing ones. That would be an alternative to banking loans, with impact on reduction of their price and/or interests. Amendments to the Law on Securities will institutionally resolve the issue of money market leading to the separation of competencies regarding the regulation of capital market and money market, where the latter would be under the domain of the Central Bank of Montenegro. The Insurance Law will enable increase of investments in this field and reduction of outflow of savings from Montenegro. Preparations for foundation of independent regulatory body for this field will be initiated. 2.2. Cooperation with International Financial Organizations Cooperation with international financial institutions (WB, EIB, EBRD, KfW) will be strengthened. The ongoing cooperation with the World Bank concerning implementation of reform activities and obtaining of financial aid will be further enhanced. Cooperation with the World Bank, regarding the Central Bank’s authorities, arises from the function of this institution as the fiscal agent of the State Union of SCG to the World Bank. It is necessary to provide conditions for servicing of debts of the Republic of Montenegro to the World Bank. Quality implementation of these activities is significant from the aspect of improvement of Montenegro’s credit rating. The Government of the Republic of Montenegro will reconcile monetary and fiscal instruments with international financial organizations (World Bank and International Monetary Fund). In order to create conditions for signing of the agreement with IMF and drawing of loan funds from the WB: Budget expenditure with deficit will amount to € 34.3 million (2.17 % of GDP);
6 Economic Policy of Montenegro for 2005 International funding of the budget deficit will amount to €18.3 million, of which donations will amount to €3.7 million, and WB loans €14.6 million (Structural Adjustment Credit, pension, health and education reform); Domestic financing of the budget deficit will amount to €16.0 million (€6.0 million from privatization proceeds and new net borrowing on the capital market of € 10.0 million); Drawing of funds for program loans shall be in the interval from €17-22 million and refers to EIB loans for: roads, railway, EPCG and Directorate for Highways; WB requirements for drawing of funds based on signed agreements will be met; Funds of the current budget reserve in the amount of € 7.0 million will not be spent in the first two quarters as the risk insurance if revenues in 2005 are not accrued in the planned amounts; Framework for new agreements and issue of guarantees will amount to US$ 32.0 million (approximately to € 24.0 million). 2.3 Fiscal Policy In the field of fiscal policy the plan is to increase fiscal capacity for 6.85% compared to the previous year, along with strengthening of financial discipline and further eradication of gray economy. Further implementation of incentive measures in the tax system area will be continued and that, along with the increase of the number of tax payers and strengthened control of tax and contribution collection, will contribute to efficient and continuous settlement of tax liabilities and provision of the planned budget revenues. Further reduction of fiscal burden on labor will be accompanied with expenditure rationalization. Continuation of policy of giving tax relieves for newly employed employees will be considered in order to stimulate new employment and possibility of transition to linear income taxation. In order to have better planning and budget execution, a model of public debt and donation management will be designed. Initial elements in preparing the Budget for 2005 are reduction of budget deficit and financing of expenditures from real sources, stable functioning of all users and participants in public expenditure and regular accomplishment of all obligations towards the international community. Principles on which the projections of revenues and expenditures are based are: recognition of requirements of the International Monetary Fund and observance of prescribed international standards, use of experience from previous fiscal years and assessment of accomplishments for 2004. Goals of the budget policy are directed towards: Increase of original revenues resulting in positive effects of implementation of new tax laws and increased efficiency in VAT collection; Relative reduction of participation of wages of employees in the Budget; Increase of capital expenses meant for building and maintenance of infrastructure and purchase of equipment; Payment of increased liabilities related to debt repayment; Reduction of budget deficit below 3%, in compliance with IMF recommendations. In addition to regular servicing of liabilities, the Budget anticipates additional support to priority development sectors. Support and inducement of development of agriculture, tourism, transportation and increase of competitiveness of domestic products will be continued through subsidy instruments. In order to improve and develop certain areas, the contracted services will provide for implementation of development projects in the area of maritime industry and transportation, tourism and education etc.
7 Economic Policy of Montenegro for 2005 Capital expenditures will be directed to funding of building of infrastructure, purchase of equipment and maintenance of the current infrastructure. Foreign loans and donations will provide for the support to structural adjustment and continuation of commenced reform of the Pension Fund, Health Fund and education. Special emphasis will be laid on the resolving of internal debts of companies, banks and the state particularly through implementation of the Law on Insolvency and launching of instruments of multilateral compensation. 2.4 Restructuring, Privatization and Investments Implementation of the Program of Company Restructuring and Support to Institutional Development will be continued and to that end, funds will be provided according to the set timeline. Market restructuring of business organizations through Turn Around Management (TAM) and Business Advisory Service (BAS) programs will include 40 companies. Activities on establishment of a guarantee fund that will support start up of businesses and implementation of new investment ideas will also be continued. In 2005, privatization of KAP, Coal Mine Pljevlja and Bauxite Mine will be completed. Sale of package shares will be offered for the following companies: Institute “Simo Milosevic”, Tobacco Mill, Port of Kotor, AD Marina Bar, HTP Boka, UTIP Crna Gora, »Obod« Cetinje and »Radoje Dakic«. In order to create conditions for successful completion of privatization of companies: Aluminum Plant Podgorica, Coal Mine Pljevlja, Bauxite Mines Niksic, Steel Factory Niksic, »Obod« Cetinje and »Radoje Dakic« Podgorica, a fund for resolving of redundancies in these companies will be established. Privatization will be accelerated and participation of private sector in the area of utility services increased. Privatization in social activities will be intensified, particularly in the sports area. Privatization proceeds will be primarily put in the function of infrastructure development and opening of new jobs. New investments will be crucial for acceleration of economic development and economic growth. Further to this goal, improvement of the environment for business activities through adoption of legal regulations will be continued. Government of Montenegro will even more decisively work on reduction and removal of administrative and other business barriers and increase of the economic system openness. The planned investments for 2005 amount to €150 million. Budget framework for capital expenditures amounts to €27.9 million that will be partially placed through the Public Works Program. Investment priority will be given to revitalization and development of capital infrastructure as follows: construction of road sections Podgorica-Matasevo-Kolasin, Risan-Grahovo-Zabljak, and creation of conditions for implementation of the Adriatic-Ionic Highway Project, maintenance and revitalization of road and railway infrastructure, water supply in coastal municipalities, construction of main sewer purification facility (resolution of wastewaters problem), resolution of solid waste problem and improvement of electricity supply (on Montenegro coast). Montenegro Investment Promotion Agency will start operating. In the legislative sphere, the Government of Montenegro will: Prepare a new law on participation of private sector in carrying out public functions aimed at improvement of the procedure of concession award; Improve legal solutions in the area of corruption prevention; Determine solutions for tax exempting a part of profit directed to investments; 8 Economic Policy of Montenegro for 2005 Work on creation of conditions for implementation of the Law on Restitution and Compensation of the Taken Away Property Rights. Further strengthening of judicial function and improvement of local government activities will provide for complete protection of ownership rights and contracts and equal rights of foreign and domestic investors.
In order to improve privatization process management the plan is to centralize the managing function over the remaining state capital, restructuring and privatization. Further to this, possibility of transforming the Development Fund will be analyzed where the present managing functions over the remaining state capital in privatized enterprises and restructuring will be integrated within the Agency for Economy Restructuring and Foreign Investments. 2.5. Prices Inflation is projected to be up to 3.0%. The level of inflation will also be affected by decisions of regulatory bodies from energy and telecommunications sectors on gradual increase of tariffs in order to make them closer to market prices as well as by changes in oil prices on the world market. Incentives to competition, reduction and elimination of business barriers and conditions for monopoly behavior will affect the price flow. Adoption of the Law on Trade, Law on Competition Protection and the Law on Consumer Protection will contribute to recognition of market environment in compliance with EU standards. 2.6. Social Policy One of priority tasks in 2005 is implementation and monitoring of the Strategy of Development and Reduction of Poverty in Montenegro with the objective to reduce the poverty rate from the present 12% to 11%. Special attention will be paid to implementation of the Strategy for permanent resolving of the issue of refugees and internally displaced persons in Montenegro with the objective to reduce the number of refugees for minimum 1,500 and a number of internally displaced persons for 2,000 in 2005. Significant attention will be paid to protection of jeopardized categories. Timeline for payment of family financial aid, children allowance, attendant aid and care allowance, maternity leave allowance, war veterans’ financial aid and personal and family disability allowance will be kept. Time gap between the month in which payment is made and the month to which the payment refers to will be reduced, in average for 3 months. Law on Certification System, Law on Training and Employment of Persons With Disabilities, new Labor Law and new Law on Social and Child Protection will be adopted. Decade of Roma Action Plan will be prepared and continuous activities carried out for the implementation of the National Plan of Action for Children, National Program of Prevention of Unacceptable Behavior of Youth in Montenegro etc. 2.7. Employment Number of the unemployed will be reduced from the present 59,671 for 5,000 persons in accordance with the Economic Reform Agenda. Implementation of the Program of legalization and prevention of work “in informal sector” and Program of employment of interns and support to employers to employ interns for indefinite period of time following the completion of internship service will be continued. Implementation of the Program of preparations for employment (training, additional training, retraining and specialization) will be intensified and the quality of labor force offer appropriate for market requirements will be improved, with the objective to reduce the number of seasonal and increase the number of permanent jobs.
9 Economic Policy of Montenegro for 2005 Incentives will be provided for employment of so-called “marginal groups” through co-financing in wage payments or fiscal liabilities on wages for a certain period of employment of those persons. More useful and more efficient role of the Employment Fund will be accomplished on the labor market through the improvement of its operational, expert and technical capacities, which will make it able to provide advisory and educational services to a higher extent than before. The updating of labor-related and other regulations having direct or indirect impact on employment will be continued.
2.8 Wage and Pension Policy Wage policy in public sector will continue to be based on the concept of minimum wage. The minimum wage will be set according to the General Bargaining Collective Agreement. Rationalization of the number of employees and reduction of tax levies will create a room for wage increase. In the area of pension and disability insurance, pensions will be indexed in a manner set by the Pension Law according to so-called Swiss formula. Regularity of payment of pensions will be provided as well as the funds for complementary indexation. Reform of pension and disability insurance will be continued through adoption of the required legal regulation for introduction of voluntary pension funds (Pillar III). 2.9. Development Policy In accordance with the Economic Reform Agenda, development policy will be implemented through programs and projects for investments in infrastructure and business expansion through different forms of cooperation with international institutions and realization of contracts with strategic corporations in the area in which multiplication effects on overall development are certain. Further to this, through Investment Promotion Agency, possibilities and conditions for investments in Montenegro will be promoted. Partnership relations with private sector will be developed in financing infrastructure, services and utility services. New legal solutions will improve the procedure of concession award. Implementation of commenced infrastructural projects on the Republic level and projects of improvement of infrastructure on the local level will be continued through the Program of Directorate for Public Works. Spatial Plan of the Republic of Montenegro, as the most significant strategic document, will be adopted in 2005 setting up the national development strategy by the year 2020. In order to eliminate energy deficit and set development priorities, the strategy of development of energy and creation of conditions for construction of new power generation facilities will start being prepared. Master plans of renewable energy sources will be adopted and pilot projects of building mini-hydro power plants and use of wind power will be implemented. Telecommunication strategy, agriculture development strategy, transportation development strategy as well as master plans in utility sector and water supply area will also be adopted. 2.9.1. Regional Development – development policy in 2005 will stream towards reduction of regional disproportions in levels of economic development. The principle of reconciliation of spatial-economic and macro-economic policy will be put in place. Secretariat for Development will directly define and follow up the implementation of regional development programs through Strategy of Regional Development. Accordingly, the Government will: 1. Define special incentives for less developed areas through appropriate solutions in tax and credit policy and policy of economic relations with abroad;
10 Economic Policy of Montenegro for 2005 2. Establish special programs of development of transportation and telecommunication infrastructure; 3. Continue electrification of non-electrified rural areas; 4. Continue with implementation of the Program of Integral Development of Montenegro Prokletije and Durmitor Area and the Project of Valorization of Bjelasica and Komovi. Incentives will be given to changing population movement and revitalization of demographically jeopardized areas and villages as well as improvement of health and social protection of population on these areas. In 2005, indicators of municipality development will be defined (within MONSTAT), sectors dealing with collection of basic economic-social indicators per municipalities redefined and proposal of Nomenclature of spatial units for statistics – NUTS prepared, in compliance with European standards. 2.9.2. Development of Entrepreneurship and Small and Medium Size Enterprises – In order to provide incentives for development of entrepreneurship and increase of number of registered legal entities, the Government will continue identifying present business barriers and their removal. A new Law on Licensing (Law on Obtaining Approval for Carrying out of Activities) will be adopted and possibilities for further reduction of taxes and contributions on personal income reviewed. Special emphasis in development of entrepreneurship and small and medium size enterprises will be paid to elimination of business barriers and increase of competitiveness of domestic production. Analysis of effects of the implementation of the project of banking support under the Program “Legalization of the Current and Opening of New Jobs” by which 14 credit lines were realized in 2004, pointed to the need to establish Credit Guarantee Fund and continue implementation of this project in 2005 with new credit lines for incentives to priority sectors and active employment of redundancies and unemployed persons.
Feasibility study for establishing of Credit Guarantee Fund is in progress and it will show under which organizational and financial conditions it will be possible to establish guarantee fund for support to small and medium size enterprises. One of options is that the Fund will be established in the context of Development Fund transformation and use of the present credit funds managed by the Fund and a part of privatization proceeds. The following will be continued: Implementation of the Program “Opening of new jobs” as the continuation of the program "Legalization of the Current and Opening of New Jobs", by which the current projects will be redefined and shaped into a project format; Implementation of project "Increase of Competitive Capacity of Domestic Companies” in the area of agriculture, tourism and wood processing; Implementation of the Program for Employment of Redundancies; Establishing of Credit Guarantee Fund for support to small and medium size enterprises; Establishing of Labor Fund; Broadening of network of regional and local business centers; Education for beginners and entrepreneurs in business; Implementation of the project "Entrepreneurship Clubs in Primary Schools"; Implementation of the project "Made in Montenegro"; Implementation of the project: "Technology Park", "Business Incubator" and "Support to the Successful"; Implementation of the project “Incentives to Export Programs”. In order to have organized and efficient approach on external market, cooperation will be developed with companies from the territory of republics of former SFRY through the project: “Stock exchange of offer and demand”; in cooperation with the Chamber of Commerce of Italian region Venetto the project “Interreg IIIA” will be initiated with the objective to establish mutual cooperation and exchange of experience and information. 11 Economic Policy of Montenegro for 2005 2.9.3. Human Resource Policy – Considering the significance of management function within a company and effects on overall development, an innovated project of managing structure education will be implemented in Montenegrin companies under the name “How to Make a Successful Company”. Further financial support will be continued in the form of compensation for manager teams operations. Special incentives will be introduced for creative staff. The Program “Contractual Management” will be implemented within the Program of Restructuring of Economy and Support to Institution Development. State Administration Reform and its optimization from the economic view will be continued. 2.9.4 Development of IT Society – Strategy of development of IT society – road to society of knowledge, will be implemented with the intention to accelerate the process of reform implementation that will put Montenegro in line with states with advanced services for citizens, business and society as a whole through implementation of IT and communication technologies.
2.10 Foreign Economic Relations Policy of economic relations of Montenegro with abroad in 2005 will be directed towards deficit reduction in commodity balance. In order to accomplish this goal, the Government of Montenegro will: Produce export strategy and policy; Define program of export inducement; Define program of competitive capacity increase of domestic production; Provide for participation in credit potential in business banking that will be directed to financing of export activities under more favorable conditions; Develop a "double track" model in the foreign trade sector; Prepare Memorandum on Joining WTO; Encourage foundation of free zones and free warehouses in several municipalities; Improve model of statistical records on import/export through MONSTAT, Customs Administration and Central Bank of Montenegro; Strive to remove obstacles for implementation of agreements on free trade with countries in the region.
2.11. European Integrations Basic goal in 2005 is to intensify activities on joining the EU and implementation of the Action Plan for European Partnership. Mid-term and long-term plans and programs will be prepared with more intensive participation in EU programs with specific purpose. Coordination of Process of Joining the EU – Commission for coordination of process of joining the European Union will implement activities on preparation of required strategic documents, including construction and strengthening of capacities in key competent ministries for formulation of regulations and policies in compliance with requirements of the internal market of EU. IT system for monitoring and reporting on accomplished results will be put in place (interactive matrix). Implementation and Preparation of Strategies and Programs for European Integrations– The program of training of government officers for EU will be implemented and implementation of Capacity Development Program for the area of European integrations will be continued. The Action Plan for European Partnership will be implemented in the following areas: (a) democracy and rule of law, (b) human rights and minorities protection; (c) regional and international cooperation; (d) economic situation; (e) EU standards and (f) cooperation in judicial and internal affairs. Action plan for harmonization of Montenegro legislation with legal heritage of EU will be prepared and action plan for communication strategy will be implemented. Regional Cooperation – Implementation of technical assistance project will be continued through TAIEX program; coordination of programs of European communities, identifying of priorities and preparation of administrative capacities; coordination of Twinning programs and analysis of needs
12 Economic Policy of Montenegro for 2005 in priority areas of state administration. Cooperation with the Center for Support to European Integrations from Ljubljana will be established and cooperation with the Office of SCG for joining EU and Office for joining the EU of the Republic of Serbia will be continued. 2.12 Environment Protection and Improvement Harmonization of national legislation with EU legislation and adequate organizing is the basic goal in 2005. New legislation will be adopted and the present amended (Environment Law, Law on Protection against Air Pollution etc); efforts will be put in creation of conditions for establishing of the Fund for Environment Protection. The following programs and projects will be implemented: Program of environment monitoring of Montenegro for 2005; The first stage of the project »Restoration of Barren Soil of Lead and Zinc Mine« in Mojkovac; Preparation of Terms of Reference for restoration of barren soil of lead and zinc mine »Suplja Stijena«-Gradac-Pljevlja; Preparatory stage of the project »Managing of Eco-System of the Skadar Lake«; Project »Ecological and Tourist Development of Bjelasica and Komovi«; IT system of Montenegro environment will be integrated with the IT system of European Environment Agency through EIONET network. International cooperation with the countries in the region and within initiatives with REC, EEA, WB, UNDP, JJI will be intensified; communication with ecological non-government sectors and media will be strengthened.
2.13. Spatial Plan
Spatial Plan of the Republic of Montenegro will be adopted in 2005, stipulating development strategy on the national level until the year 2020 and the spatial plan of the area of special purpose for sea property.
Comprehensive measures and activities will be taken for spatial protection as the crucial resource and its further devastation will be prevented.
2.14 Statistics
Considering obvious problems in monitoring the economic policy implementation, efforts will be put in implementation of the project of introduction of national accounts system in Montenegro and improvement of statistical records model.
13 Economic Policy of Montenegro for 2005
3. SECTORAL POLICIES
3.1. Manufacturing Industry, Energy and Mining Basic goal of processing industry development policy in 2005 is the production stabilization and increase. It will be accomplished by intensifying technical – technological restructuring of companies and their privatization. Privatization of KAP, Coal Mine Pljevlja and Bauxite Mine will be completed creating conditions for production dynamism. Hired financial advisors will work on privatization of companies “Radoje Dakic” and “Obod”, and a revitalization and development program for the forestry and wood industry will be carried out. Energy Policy will be adapted to conditions of free activities of markets. In accordance with energy needs, linking of Montenegro energy system with systems of other countries will be continued. In order to eliminate energy deficit and set up development priorities, elements of energy policy will be established, the preparation of the energy development strategy will commence and conditions for construction of new energy facilities will be created. Functional separation of the Electricity Company of Montenegro will be completed. In order to have better valorization of energy resources, Coal Mine Pljevlja and Thermal Power Plant “Pljevlja” will be privatized. Promotion of participation of private sector in energy sector will be continued as well as support to efficient and more rational use of energy and restorable energy sources. Efforts will be put in generation of database and information of potential locations for use of restorable energy sources. Activities on implementation of projects by which energy deficit is to be eliminated will be continued. The Program of Geological Explorations of Interest to the Republic will be carried out in the area of geology and mining. Tenders for award of concessions for deposits for which concession agreements expired, as well as for new deposits will be announced. Oil and gas exploration in Montenegro submarine will be continued, and drilling at exploratory drill on the block III of submarine will be commenced. 3.2. Tourism The expectations are to have about 5 million nights (increase of 8% compared to 2004.) out of that 3.6 million nights of domestic and 1.4 million nights of foreign tourists (growth of about 20%) that will have impact on growth of overall tourist turnover for 10.3% compared to 2004 (i.e. the revenue of about €235 million will be accrued). The priority will be to enhance the quality of tourist product through: Improvement and broadening of overall tourist infrastructure; Modernization and improvement of accommodation and other tourist capacities; Improvement of human resources competitiveness; Modernization of the present and opening of new border crossings . Significant improvements are anticipated in bed categorization. Out of the total of 28,000 registered and categorized beds in 2005: 3.5% (1000 beds) will raise the category from one star. Viewed from the aspect of accommodation capacities with one star 33% of these capacities will raise the category level. 8.6% (2400 beds) will raise the category from two to three stars. Viewed only from the aspect of accommodation capacities with two stars, about 16% of these capacities will increase the category level to three stars thus increasing the offer of this category of beds for 23%. 2.9% (800 beds) will raise the category from three to four stars. Viewed only from the aspect of accommodation capacities from three stars, about 7.6% of these capacities will
14 Economic Policy of Montenegro for 2005 raise the category level to four stars and thus increase the offer of beds of this category for 48%. The possibility of introducing zero rate and/or reduced rate of VAT on tourist turnover will be considered. In cooperation with banks, the Ministry of Tourism will provide support to companies concentrated on increase of tourist product quality, primarily hotel industry. In order to provide more quality statistical grasp for monitoring and anticipating tourist turnover, the Ministry will initiate activities on establishing of department for monitoring of tourist turnover at the Ministry of Tourism or MONSTAT. Projects aimed at resolving of large problems that have direct impact on the volume of tourist turnover will be carried out: water supply and treatment of wastewaters; electricity supply; treatment of solid waste; improvement of tourist and road signalization. Activities on implementation of developmental projects will be continued in cooperation with foreign experts: "Tourist Valorization of Ada Bojana" (tender procedure will be completed and in case of better quality bidders, agreement on start of works will be signed), "Tourist Valorization of Long Beach", tourist valorization of other developmental projects anticipated in the Master Plan and spatial – planning documentation and acceleration of privatization process. Activities and/or certain pilot projects will be carried out in order to create better quality and more diversified tourist offer, in compliance with the Study of Mountain Tourism Development, and to continue commenced activities on the implementation of the projects: "Nautical Tourism", "Wellness Tourism", "Development and Improvement of National Parks", "Modernization of the Present and Development of New Ski Paths", "Protection against Noise", "Coastal Guard", "Tourist Signalization" and "Quality Raise of Tourist Municipalities’ Offer". In cooperation with Tourist Organization of Montenegro, a marketing concept of Montenegro tourism will be created with the emphasis on creation and positioning of the brand "Montenegro" on the international level, the implementation of which will commence when possible.
Promotion activities aimed at creation of recognizable image of Montenegro’s tourist product will be continued. In addition to activities on the already commenced campaigns ("A Year of Good Food – Wine and Dine", "Meet Your Guests with a Smile", "In Winter among Friends", "Hot Winter in the Hills", "Summer among Friends", "Selection of Montenegro Souvenir”, "Blue Flag" and "Let it Be Clean"), Ministry of Tourism will continue with activities on: encouraging tourism development, creation of favorable environment for investments in tourism and staff education. The Ministry will participate in the implementation of projects related to new employment, increase of competitive position of domestic products and services as well as credit support for development of small and medium size enterprises in tourism.
3.3. Agriculture, Forestry and Water Supply Ministry of Agriculture, Forestry and Water Supply will direct its activities towards: a) implementation of incentives policy in agriculture; b) redefining of domestic agriculture protective measures; c) loan policy reform; d) institution building in agriculture; and e) generation of trade mark of organic food products in Montenegro. That will contribute to acceleration of development of primary agricultural production and its linking with processing industry in the function of accomplishing the following goals:
15 Economic Policy of Montenegro for 2005 Reduction of import dependence and outflow of money for those products for the production of which there are real preconditions and export of specific products, primarily through tourism; Implementation of the food production concept to the level of optimum use of disposable land resources under adequate institutional and financial support of the state; Opening of new jobs in primary agriculture and agro-industry; Providing of balanced regional development and creation of better life conditions in rural areas. International support will be increasingly directed towards the implementation of infrastructural facilities in rural areas and the improvement of competition (USAID Technical Assistance Programs), the development of processing capacities and direct cooperation (business to business) between domestic and foreign economic subjects as well as the institution development programs (EAR). Implementation of the legally anticipated measures, long-term development projects, institutional support to agriculture as well as other obligations undertaken will continue, including: Operating program of health protection of animals; Program of health protection of grown plants; Financing of Service for Cattle Selection, Republic Service for Plant Production and Agency for Organic Agriculture (that is in the process of establishment); Participation in financing of costs of Veterinary Laboratory, Phytosanitary Laboratory and Dairy Laboratory, as well as Package of social programs in rural areas through implementation of programs young farmers and old age benefits. The following is also planned: to continue modernization and increase of competitive capacity of producers in agriculture and agro-industry through incentives to producers and manufacturers; to continue providing of support in problem solving of placement of market surpluses of agricultural products; to enhance construction and modernization of manufacturing capacities in all more significant agricultural sectors for removal of the current bottlenecks; to apply instruments of protection against disloyal competition in accordance with the Law on Foreign Trade; to continue with generation of the trade mark of products of organic agriculture; to strengthen professional and inspection services both in terms of staff and technical capacities; to modernize laboratories; to initiate project “Development of Family Business in Agriculture”; to build IT system and introduce register of producers; to reconcile legal regulations with EU standards and WTO principles; to eliminate disloyal competition through consistent implementation of legal regulations. Geographic information system will be introduced in the sector of forestry with the objective to enable more efficient planning, protection and use of woods. The process of generation of standards in forestry according to FSC methodology will be initiated as well as the implementation of the project “Protection of Water Flows of Tara and Lim against Erosion Processes”, targeted at better regulation of flows of these rivers and protection of agricultural land. The program for the use of funds for financing water supply facilities in rural areas, for protection of agricultural land against harmful effects of waters and for hydro-geological exploration works - will be adopted in the sector of water supply. Amendments to the Law on Waters will be made and Administration for Water Supply of Montenegro will be established, along with the acceleration of activities on valorization of natural water resources for commercial purposes (bottling of water under a BOT arrangement).
3.4. Construction, Housing and Public Utility Sector
The basic goal in the construction sector is stronger inclusion of domestic construction operations into investment works, particularly infrastructure in the country and the region. A consortium will 16 Economic Policy of Montenegro for 2005 be put in function in order to achieve a more competitive position of construction and other cooperative companies; control over implementation of investment works will be strengthened; activities for elimination of “labor gray market” through introduction of obligations of issuing licenses for all workers and companies from other countries that carry out works in Montenegro will be strenghtened; conditions for incentives to strengthening of companies for preparation of city planning documentation and project documentation will be created. Action plan of housing policy in Montenegro will be prepared in the housing area and the implementation of the Law on Condominium Ownership commenced. Within the utilities sector, the Law on Waste Management will be adopted; a study on impact on the environment and feasibility study for the proposed locations of inter-municipal landfills and landfills for industrial waste will be done; technical documentation for five landfills will be prepared; sanitary landfill for municipalities Bar and Ulcinj will be built; complete sewage system and devices for purification of wastewaters in Rijeka Crnojevica will be constructed; water supply of Montenegrin coast will be improved and documentation will be prepared for drafting a master plan of water supply of this area that will determine permanent solutions of water supply from Skadar Lake under the support of the World Bank. Other priority activities will also be carried out, as defined for 2005 by the Strategic Master Plan for Waste Management at the national level , the Master Plan for Drainage and Purification of Wastewaters in Coastal Municipalities and Municipality of Cetinje and the Strategic Master Plan for Sewage and Wastewaters in the Central and Northern Region of Montenegro. Sources for funding of implementation of certain stages in master plans are not yet certain and activities will be undertaken to provide donations and loans of international institutions as well as to accomplish business and technical cooperation with foreign companies interested in investing in this area. 3.5. Maritime Industry and Transport Within the transportation area, reconstruction of the existing infrastructure capacities and construction of new ones will remain to be the priority. Transport development strategy will be prepared. In the course of 2005 within the maritime industry, the key activities will be: opening of Ro-Ro, passenger and cargo transportation of the Port of Bar with countries in the region (Slovenia, Italy and Albania); attracting of cargo from the port catchment area; promotion of cheap form of transportation and elimination of inland bottlenecks. The agreement on strategic cooperation on establishing of regular ship line for transportation of containers on the relation Bar –South Italy will be implemented. The study on the present administrative barriers in transportation chain in transit with the catchment area of the Port of Bar will be prepared. The project of restoration of Montenegrin shipping industry will be continued. The Law on Ports and the Law on Maritime Navigation will be adopted. National plan of interventions in case of sudden sea and coast pollution and mational plan for search and rescue will be prepared. National coast guard will be formed to provide higher degree of safety and security of people and environment protection. Particular attention will be paid to one of the most important export components – ship overhaul. In air transport, the implementation of the project of urgent restoration and modernization of Montenegrin airports in Podgorica and Tivat will be completed. The project of restoration of a part of railways will be completed by mid 2005. In road transportation – works on 11 locations on the main road M-2 Podgorica – Kolasin will be completed and maintenance of regional and main roads will be improved. In order to overcome the present situation in the road transport, the following activities will be initiated: providision of loan support for replacement of passenger and cargo motor pool; control of the companies dealing with
17 Economic Policy of Montenegro for 2005 transportation of goods and passengers; equalization of conditions for service delivery; discouraging and legally limiting operations of individual operators and reconciliation of road transportation with other transportation branches. 3.6 Telecommunications and Postal Services In the field of telecommunications, the activities on increase of access of telecommunication traffic and its adapting to contemporary market business requirements will be continued along with the gaining of universal service function. Legal regulations in this area will be improved. Telecommunication development strategy will be adopted. The quality of telecommunication traffic will be improved, telecommunication network in rural areas will be broadened and reconstructed. Coverage of the Republic area with the mobile telephony signal will be increased. Privatization of Telecom Montenegro will be carried out. In the field of postal services, new legal regulations will be adopted (Law on Postal Services), new services introduced and the current services expanded, along with rationalization and optimization of operations of the Montenegro Post.
3.7. Trade Basic goals of the trade development policy are as follows: ensuring satisfactory market supply, completion of initiated transformation processes and continuation of activities on the implementation of the Program for Elimination of Gray Economy. In 2005: The activities concerning privatization of companies in the field of trade will be accelerated; Improvement of cooperation between local government bodies and business associations will be encouraged; Work of the competent inspection bodies for removal of irregularities in the field of turnover of goods and services will be intensified; The initiated activities on promotion of introduction of ISO 9000 system quality in the field of trade will be continued; Law on Consumer Protection will be adopted; Law on Competition Protection will be adopted.
18 Economic Policy of Montenegro for 2005
4. SOCIAL ACTIVITIES
Development of social activities will be in accordance with the objective possibilities. Construction, renovation and furnishing of certain facilities and implementation of reforms in spheres of social activities will be continued with own and international community funds.
In the area of education: Rationalization of the number of the present schools will be made and adapting of university education to requirements of the market economy; Professional training of teaching staff and finding of funds for motivating talented pupils and students; The fund for the provision of foreign scholarships for the graduated students will be established; Textbooks will be printed in accordance with new education programs; Introduction of IT system in educational institutions will be continued; The strategy of scientific-research activity will be adopted; International cooperation will be developed with the goal to get into the European research space and European zone of university education.
In the field of culture: Activities on developing a strategy of cultural development of Montenegro will be continued. The following laws will be put in the procedure of review and adoption: Law on Cultural Property, Law on Museums, Law on Libraries and Law on Archives. The following laws will be prepared: Law on Environment Protection, Law on Publishing Activity, Law on Mandatory Copy, Law on Independent Artists and Law on State Awards. The support in the development of culture will be continued through co-financing of programs and projects based on public competitions. The activities on establishment of electronic database for protected cultural property as well as activities on production of the Archeological Map of Montenegro, panorama map of Kotor and panorama map of the region of the Skadar Lake will be initiated. The implementation of the project of production of “Management Plan of the City of Kotor” will commence in cooperation with UNESCO. Organization of “Days of Cultural Heritage” will be carried out in cooperation with the Council of Europe. Participation of Montenegro in the “Days of Culture of Serbia and Montenegro in Germany 2005” will be organized as well as participation of Montenegro in the Fine Arts Biennial in Venice. In the media sphere: The Law on Illegal Media Concentration will be put in the procedure of review and adoption. The process of ownership and managing transformation of publishing house “Pobjeda” will be continued as well as activities on transformation of RTCG into public service. The improvement of information in Albanian language and languages of other national and ethnic groups as well as informing of persons with impaired hearing and sight will be continued. Financing of production and broadcasting of programs of RTCG of interest to science, education, culture and art will be continued.
19 Economic Policy of Montenegro for 2005 Activities on media presentation of the project “Decade of Roma 2005-2015” will be initiated.
In the sphere of health protection: The Law on Transfusiology will be adopted. Conditions for the implementation of the pilot project of the new model of organizing primary health protection based on the selected doctor model will be created. Further to this, within the Health Center of Podgorica, an education center will be constituted for providing of continuous education. Strategy of public health will be adopted to provide better health system management, rationalization of available resources and planned organized directing of health system capacity development. The Agency for Medicines will start to function. The strategy for prevention of traffic accident traumas and injuries will be adopted. The cooperation with UNICEF and other donors on improvement of health of children with special emphasis on children at risk will be continued in compliance with the set National Plan of Action for Children. Within the project Decade of Roma 2005-2015, efforts will be put on raising the level of health education among Roma population as well as on implementation of other measures and activities planned by the action plan Decade of Roma. The implementation of the strategy of mental health will be continued with the opening of pilot project of the Center for Mental Health in Kotor and expansion of its network in the community. In the field of sport the following activities will be taken: Incentives to capital investments in sports resulting in ownership transformation and privatization in sports; Enrichment of sports education of children and youth in order to increase the level of consciousness, increase the number of children and youth engaged in sports, provide for sport successes and indirectly prevent socio-pathological phenomena (alcohol, crime, drug addiction, etc); Creation of optimum conditions for preparations and participation of young talented sportsmen in order to achieve better results on international competitions; Improvement of propaganda system and animation of sports recreation for different groups of citizens; Stimulation of professional, advisory, developmental and research work in sports; Encouraging activities of Republic sports associations and Montenegro Olympic Committee; Cooperation with international sports organizations and institutions; Granting of awards and scholarships for promising top sports people in order to prevent outflow of young sportsmen out of Montenegro. Reform of state administration is directed towards establishment of rational and efficient system adapted to objective possibilities and needs for establishing of standards and function of public service in the service of citizens. Level of IT equipment will be raised in the public administration as well as IT knowledge of employees.
In the judicial area, efforts will be put in creation of financial, staff and other requirements for adoption of international standards as to recognize safety and rule of law as assumptions of development of democratic principles and open economy system. Efficiency of judicial system will be increased in solving economic disputes primarily through reduction of executive procedure. Implementation of judicial reform will be continued in cooperation with USAID. Appellate Court will be established and activities on strengthening of Administrative Court will be implemented. 20 Economic Policy of Montenegro for 2005
21 Economic Policy of Montenegro for 2005
5. GROSS DOMESTIC PRODUCT
Projection of gross domestic product is based on positive trends accomplished in 2004, particularly in areas of industry production and tourism, as well as on the strategic goals defined in the Economic Reform Agenda. Gross Domestic Product is projected to reach €1,580 million, which means a nominal growth of 7.1%. With the expected growth of retail prices of 3.0%, real growth of gross domestic product will amount to 4.1%.
Public expenditures are projected at the level of €727.2 million, which accounts for 45.95% of the gross domestic product. Growth of budget of Montenegro and funds for health protection will be slower than the growth of gross domestic product while the expenditures of the Pension Fund and local governments will be in accordance with the rate of growth of gross domestic product. Decrease of participation of public spending in gross domestic product will thus be provided. The commenced reforms will provide for more efficient budget expenditures and health protection, regular and stable execution of obligations related to the pension and disability insurance system and increase of level of income of local governments.
The budget of Montenegro is projected at € 462.8 million. Budget deficit will amount to € 34.3 million or 2.17% of gross domestic product being in accordance with IMF requirements that the controlled budget deficit should be below 3.0%.
The budget as well as overall public expenditures are projected by taking into account: The balance of the current expenditures and development component; Stable functioning of all beneficiaries and participants in public expenditures; Regular servicing of legal and foreign obligations.
The increase of budget revenues (particularly from value added taxes), rationalization of expenditures along with the increase of capital expenditures (that will be allocated mostly for public works) will enable the intensification of investment activities and exert positive impact on the growth of gross domestic product.
22