Event
On 2 April, long-time incumbent President Milo Djukanovic was defeated by his young opponent and former economy minister Jakov Milatovic. The 37-year old new president, who received 59% of the votes, will take office on 20 May. Early parliamentary elections will be held later this year.
Impact
The outcome of the presidential election is a historic event as Djukanovic has been a dominant political figure in Montenegro, having been prime minister and then president over the past 30 years. However, Djukanovic’s decline was already obvious when his party lost power after the parliamentary elections in 2020 and suffered severe defeats in last year’s local elections. Djukanovic’s successive setbacks have the same roots, namely fatigue with crime, a creeping perception of corruption and a desire for change by the majority of the population. Milatovic’s measures as economy minister, notably a minimum wage increase, also increased his popularity. During the campaign, he pledged to reduce corruption, improve the rule of law and accelerate reforms on the path to EU accession. His pro-EU stance implies that he will not deviate from his predecessor’s foreign policy line. The EU accession target – at this stage, Montenegro has advanced the most compared to the other EU candidates in the Balkans – and related reforms will indeed continue to define government policies. As a result, his centrist and business-friendly “Europe Now Movement (PES)”, launched less than a year ago, is expected to confirm Milatovic’s latest electoral success in the future legislative elections. This being said, deep changes are unlikely as a governing coalition will probably result from the next elections and strong vested interests will slow down progress in reforms. At an EU level, a new pro-European president in Montenegro is welcome news against the background of the conflict in Ukraine, particularly in the Balkans where historical Russian influence persists in some other countries (i.e. Bosnia Herzegovina and Serbia) and affects EU unity on economic sanctions against Russia. Still, it remains to be seen whether Milatovic’s sympathy for Serbia will have any influence on his clearly declared pro-EU and pro-NATO stance during his rule.
The shifting political landscape is occurring at a time of economic difficulties. Even though inflation has eased from a peak of 17.5% in December to 15% in January, it remains one of the highest in Europe, mainly due to the fallout of the war in Ukraine, and continues to hit domestic consumption. Moreover, the economy is affected by the EU’s economic slowdown, high public debt and lower investments after the completion of the expensive first phase of the Bar-Boljare highway project. Hence, GDP growth is expected to fall significantly this year after a strong year 2022 (+6.9%). The only bright spot, and not the least, could come from the dominant local tourism industry, which accounted for 40% of current account revenues in 2019. After very poor performances due to the pandemic, tourism arrivals gradually returned to pre-Covid levels in 2022 (see graph), notably as the rise in the number of Western European tourists offset the decline in Russian and Ukrainian tourists.
Therefore, although the business environment risk rating remains unchanged at this stage at a high F/G, it cannot be ruled out that an upgrade will be considered later this year should downside risks (especially the EU’s economic momentum and energy prices) ease and if the government takes stimulating measures in support of consumption. As for the short-term political risk, the rating is expected to remain stable in 2/7.
Source: credendo