Montenegro recorded a stronger-than-expected budget performance in the first half of 2026, with higher tax revenues, improved collection and increased income from employment and corporate activity supporting public finances. Budget revenue reached €1.437 billion between January and June, equivalent to 16.8% of estimated annual GDP. Revenue was €114.3 million, or 8.6%, higher than in the same period of 2025 and exceeded the government’s first-half plan by €26.5 million.
Despite stronger revenue collection, the state budget remained in deficit. The Ministry of Finance reported a deficit equal to 1.3% of estimated GDP, while stating that the result was €141.9 million below the planned level.
Revenue Growth Strengthens Fiscal Position
Based on the reported revenue-to-GDP ratio, Montenegro’s estimated nominal GDP for 2026 is approximately €8.55 billion. A first-half deficit of 1.3% of GDP corresponds to around €111 million, while the difference between the planned and realised result indicates that the original first-half deficit projection was approximately €253 million.
The lower-than-expected deficit reduced immediate financing requirements and improved the government’s liquidity position before the second half of the year, when public expenditure typically increases. The budget recorded a surplus on current operations, meaning regular revenues covered recurrent expenditure. Once capital expenditure was included, the overall budget remained in deficit.
Tax Revenues Drive Budget Performance
Several tax categories contributed to the stronger revenue result. Personal income tax revenue increased by 24.2% to €57.8 million, exceeding the government plan by 14.6%. The increase was linked to higher employment, rising nominal wages and improved collection, as well as changes in the distribution of labour taxation between central and local government and the wider impact of the Europe Now reform programmes. Corporate income tax generated €215.4 million, an increase of 2.5% compared with the first half of 2025. Corporate tax accounted for almost 15% of total first-half budget revenue.
Value-added tax (VAT) remained the largest revenue source, increasing by €36.6 million, or 6.1%, to €638.6 million. VAT represented approximately 44% of total first-half budget income. Excise revenue rose by 4.5% to €180.7 million, while social contributions increased by 15.1% to €211.8 million, exceeding the plan by 5.4%. VAT and excise collections together generated €819.3 million, accounting for around 57% of total revenue.
Imports Support Consumption-Based Revenues
Montenegro’s budget performance continues to rely significantly on consumption, imports, fuel, tourism activity and household spending. The country imported goods worth €2.18 billion in the first half of 2026, while exports totalled €261.4 million. Imported vehicles, machinery, construction materials, food, fuel and consumer goods contributed to VAT, customs-related income and excise collections.
The structure allows strong fiscal revenues during periods of high consumption and external inflows, but it also creates dependence on tourism receipts, foreign investment, remittances and financing conditions. The nominal increase in revenue was also influenced by inflation, as higher prices increase VAT collections even without an equivalent rise in physical sales volumes.
Capital Spending Expands but Execution Remains Limited
Spending on capital projects reached €114.8 million in the first half of 2026, an increase of 5.1% compared with the same period of the previous year. Of this amount, €82.55 million was executed through the formal capital budget for roads, utilities, healthcare, education and other infrastructure projects.
The annual 2026 capital budget amounts to €305 million and covers approximately 396 projects. Execution by the end of June represented around 27% of the annual allocation. The government’s broader 2026–2030 investment master plan includes 258 priority projects with a total estimated value of approximately €5.74 billion. The programme includes around €3.32 billion for transport infrastructure, €860 million for energy, €497 million for healthcare, €422 million for environmental and communal infrastructure, and €228 million for education.
Debt Remains Key Fiscal Constraint
The scale of Montenegro’s planned investment programme exceeds the capacity of current budget surpluses alone and will require a combination of state borrowing, EU grants, the Western Balkans Growth Plan, European financial institutions, bilateral lenders, municipal contributions, public companies and private investment. Public debt remains a significant fiscal consideration. According to World Bank estimates, Montenegro’s public debt stood at around 64% of GDP at the end of 2025 and is expected to remain near that level over the medium term.
The government’s 2026 budget allows borrowing of up to approximately €710 million to finance the deficit, capital spending, debt repayments and advance financing for larger maturities expected in 2027 and 2028. Montenegro’s euroisation reduces currency risk because government revenues and debt obligations are denominated in euros. However, the country remains dependent on external capital markets because it does not have its own monetary authority capable of providing sovereign liquidity.
Credit Outlook Improves but Structural Risks Remain
In February 2026, S&P Global Ratings affirmed Montenegro’s sovereign rating at B+ and revised the outlook from stable to positive. The rating agency cited EU accession progress, improving institutions and expectations that net general government debt could average around 52% of GDP between 2026 and 2029 after accounting for liquid government assets.
The first-half fiscal results support the improved credit outlook by reducing the probability of unexpected financing needs. However, structural challenges remain, including a small and concentrated economy, dependence on tourism and property investment, external deficits, administrative capacity limitations and a large public investment pipeline.
The Europe Now 2 reforms reduced pension contributions and increased disposable income, supporting consumption and employment formalisation while removing a recurring revenue source from the public system.
Higher VAT, income tax and remaining contribution collections have partly compensated for this change, but long-term fiscal balance depends on continued employment and productivity growth.
Fiscal Improvement Requires Long-Term Discipline
The first-half results provide additional fiscal flexibility, but the full-year outcome will depend on capital budget execution, recurrent spending control and debt obligations. The planned annual deficit remains approximately €278 million, equal to around 3.2% of GDP, while external institutions expect the wider general-government deficit to remain between approximately 3.3% and 3.7%.
Montenegro’s stronger first-half revenue performance, current-spending surplus and lower-than-planned deficit improve fiscal resilience, but the durability of the position will depend on maintaining revenue growth and preserving fiscal capacity ahead of higher debt and infrastructure financing requirements expected from 2027 onward.
