The European Commission warned that Montenegro’s recently announced Euro Model could add pressure to public finances and the external balance. The agenda combines tiered minimum-wage increases with the elimination of pension contributions, as the country faces a tight fiscal outlook.
In 2025, pension contributions were 11.1% below plan. Their share of GDP fell by 2.8 percentage points to 4.3% after contribution rates were halved, reducing revenue from a source affected by the reforms.
Montenegro recorded a general government deficit of 4.3% of GDP in 2025, compared with a revised target of 3.5%. Total public spending rose 7.8% year on year to 45.4% of GDP, above the planned 44%, while capital expenditure increased 14.9%. Higher social transfers, health spending and subsidies drove the rise in outlays.
The public-sector wage bill, social security and health transfers together accounted for 68% of total government spending in 2025. VAT and excises represented 54% of budget revenue, leaving the state highly exposed to changes in consumption.
For 2026, the deficit is projected at 3.7% of GDP, above Montenegro’s 3% fiscal-rule ceiling. The country uses the euro but is not a member of the euro area. With limited monetary-policy tools, fiscal policy is its main domestic instrument for managing demand and inflation; a loose fiscal stance can feed more directly into imports, prices and the current-account deficit.
The Euro Model follows the Europe Now 2 programme, which supported employment and wage formalisation but also changed the structure of public revenue. Higher wages and lower payroll charges are politically attractive, but future reforms will need to broaden the tax base and improve productivity quickly enough to compensate for lost contribution revenue.
Without that adjustment, Montenegro risks entering the EU with greater household purchasing power but less fiscal room to respond to shocks, finance infrastructure and absorb membership costs.
