Government proposes a 40 percent cut in fuel tax to offset the rise in gas and oil prices as the vital tourism sector takes a hit.

Montenegro is banking on a new financial package to pull the tiny Balkan country out of an economic and energy crisis exacerbated by the Russian attack on Ukraine.

The proposed set of measures has come before parliament but is yet to be approved due to a lack of consensus.

Russia is the largest foreign investor in Montenegro. In 2019, Russian investments equalled 26 percent of the country’s GDP, most of it in the real estate and tourism sectors.

Montenegro’s tourism sector—its biggest revenue earner—is also heavily dependent on visitors from Russia and Ukraine, countries facing their own economic woes due to the conflict. 

For the record, Montenegro has joined other nations in condemning Russia, which is facing severe financial sanctions from the United States and its allies. 

What is of immediate concern for Podgorica is the continuous rise in oil and gas prices, most of which is imported.

“The entire economy of Montenegro will, in any case, suffer damage due to the events in Ukraine,”  Mladen Bojanic, Montenegro’s Minister of Capital Investments, tells TRT World.

 “Inflation, caused, first and foremost, by the rise in the price of petroleum products, will be reflected in the standard of living of citizens,” he adds. 

Bojanic says that though energy supplies have not been disrupted, prices of petroleum products have increased every day. 

“The Montenegrin energy system is not significantly disrupted by the events in Ukraine. Electricity bills haven’t gone up so far. The only thing that has shown repercussions of events in Ukraine so far is the price of petroleum products,” he says. 

“The state will respond to this by amending the Law on Excise Duties, and plans to reduce the excise tax by up to 40 percent, which would reduce the final price of derivatives at pumping stations by 10-15 percent.”

The government is hoping that the cut in fuel taxes will prevent an increase in food and transportation costs.

“Considering that Montenegro’s energy sector, except for the market of petroleum products, is not exposed to the mentioned influence, the government must find a way to regulate the prices of petroleum products. Electricity production is based on domestic resources, which makes Montenegro energy-independent,” Bojanic adds.

Minister Bojanic also spoke about the government’s plans to reduce reliance on Russian energy, since diversification of energy supplies is necessary to ensure that countries like Montenegro are less susceptible to potential political pressure from Moscow. 

“We are of the opinion that energy, in such a crisis period, must be the mainstay of the development of the entire economy. In addition to maintaining our energy system, new projects are of great importance,” he says. 

Montenegro will prioritise the search for gas in its own offshore fields, which will help with a smooth energy transition and energy independence, he says. 

Additionally, the Ukraine crisis has dashed hopes of a recovery in Montenegro’s vital tourism sector, which was hoping to get back on its feet after a two-year pause due to the Covid pandemic.

Tourism accounts for an estimated 25 percent of Montenegro’s GDP. 

“The negative impact of the conflict in Ukraine on the upcoming tourist season is expected, because a significant percentage of visitors on the Montenegrin coast in the last decade and more have been from Ukraine and Russia,” the minister says.

Montenegro has had very close relations with Russia, culturally and economically, but the economic fallout of the Ukraine crisis is threatening to set the clock back by several years.

Source: TRT World