Economic Freedom
Macroeconomic Outlook
Economic Freedom of the World – Fraser Institute Fraser Institute- Economic freedom of the world- 2012 report
The index published in Economic Freedom of the World measures the degree to which the policies and institutions of countries are supportive of economic freedom. The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to compete, and security of privately owned property. Forty-two variables are used to construct a summary index and to measure the degree of economic freedom in five broad areas: 1. Size of Government; 2. Legal System and Property Rights; 3. Sound Money; 4. Freedom to Trade Internationally; 5. Regulation.
Economic freedom from around the world In the chain-linked index, average economic freedom rose from 5.30 (out of 10) in 1980 to 6.88 in 2007. It then fell for two consecutive years, resulting in a score of 6.79 in 2009 but has risen slightly to 6.83 in 2010, the most recent year available. It appears that responses to the economic crisis have reduced economic freedom in the short term and perhaps prosperity over the long term, but the upward movement this year is encouraging. In this year’s index, Hong Kong retains the highest rating for economic freedom, 8.90 out of 10. The other top 10 nations are: Singapore, 8.69; New Zealand, 8.36; Switzerland, 8.24; Australia, 7.97; Canada, 7.97; Bahrain, 7.94; Mauritius, 7.90; Finland, 7.88; and Chile, 7.84. The rankings (and scores) of other large economies in this year’s index are the United Kingdom, 12th
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(7.75); the United States, 18th (7.69); Japan, 20th (7.64); Germany, 31st (7.52); France, 47th (7.32); Italy, 83rd (6.77); Mexico, 91st, (6.66); Russia, 95th (6.56); Brazil, 105th (6.37); China, 107th (6.35); and India, 111th (6.26). The scores of the bottom ten nations in this year’s index are: Venezuela, 4.07; Myanmar, 4.29; Zimbabwe, 4.35; Republic of the Congo, 4.86; Angola, 5.12; Democratic Republic of the Congo, 5.18; Guinea-Bissau, 5.23; Algeria, 5.34; Chad, 5.41; and, tied for 10th worst, Mozambique and Burundi, 5.45. The United States, long considered the standard bearer for economic freedom among large industrial nations, has experienced a substantial decline in economic freedom during the past decade. From 1980 to 2000, the United States was generally rated the third freest economy in the world, ranking behind only Hong Kong and Singapore. After increasing steadily during the period from 1980 to 2000, the chain linked EFW rating of the United States fell from 8.65 in 2000 to 8.21 in 2005 and 7.70 in 2010. The chain-linked ranking of the United States has fallen precipitously from second in 2000 to eighth in 2005 and 19th in 2010 (unadjusted ranking of 18th). Nations that are economically free out-perform non-free nations in indicators of well-being Nations in the top quarter of economic freedom had an average per-capita GDP of $37,691 in 2010, compared to $5,188 for the bottom quarter nations in 2010 current international dollars. In the top quarter, the average income of the poorest 10% was $11,382, compared to $1,209 in the bottom in 2010 current international
dollars. Interestingly, the average income of the poorest 10% in the most economically free nations is more than twice the overall average income in the least free nations. Life expectancy is 79.5 years in the top quarter compared to 61.6 years in the bottom quarter. Political and civil liberties are considerably higher in economically free nations than in non-free nations.
Montenegro in the report In the 2010 EFW Report Montenegro ranked 28th out of 144 countries. The worst rank was for the size of the government 94th and business regulation 79th while Montenegro was best ranked for credit market regulations and labor market regulations. Going into detail of the structure of the index we can see that within the size of the government most problematic areas are government enterprises and investments and payroll tax. In the area of legal system enforcement of contracts is the area for improvement while in the area of business regulations further actions are needed in the licensing area. As the report is showing, the measures against the economic crisis are influencing the level of economic freedom, which is the case for Montenegro. Every introduction of the new taxes, levies, burdens are having a negative impact on the level of economic freedom that will be shown in the next reports. Since Montenegro is devoted to achievement of a high level of economic freedom before taking actions the Government should always take into consideration the impact on the level of economic freedom. As a small country it is necessary to build Montenegro as an open, investment friendly country since this road can bring Montenegro to the necessary level of economic development. ■
Macroeconomic Outlook REAL SECTOR
According to accession made in February by IMF, economic activity in Montenegro in 2012 was paused, as the result of natural disasters and a sudden slowdown in industrial metal production. The economy is now faced with fiscal imbalances that have resulted in a rapid increase in public debt in recent years. For 2013, moderate economic recovery is expected.
Basic sectors
Industrial production: recorded a fall of 0.8 % during the period JanuaryFebruary 2013 in comparison with the same period last year. Major decreases in industrial output were recorded in the manufacturing sector (34,6%), while a noticeable increase in output levels (49,9%) was recorded in the electricity, gas, stream and air conditioning supply. Tourism: during January 2013, 15 504 tourists, of which 70.1% were foreigners, visited Montenegro, which was slightly below (5.5%) the level recorded at the same time last year. During this period, 57 059 nights were recorded (of which 73.4% were foreigners). Bar along with Budva and Herceg Novi were the most visited cities. Construction: last available data referring to this sector shows that during the fourth quarter of 2012, the total value of finished construction works was €68.5 million, while anticipated new building work projects are expected to total €19.6 million, 141,6% above last year`s average.
Inflation
Consumer prices recorded monthly growth of 1.6% in January 2012. The average inflation rate, measured by the Consumer Price Index (CPI), during the period January-February 2013 was recorded at a level of 3.7%.
The most significant price increases during that period were recorded in food and non alcoholic beverages (6.4%) and renting (6.2%).
Employment and Wages
The data from the Employment Agency of Montenegro shows that at the end of March 2013, there were 32 934 unemployed, leaving the unemployment rate at a level of 14.2%. In January 2012, the gross average salary was €731; the average salary without taxes and contributions was €490. Higher salaries, without taxes and contributions, were recorded in electricity, gas steam and air conditioning supply (€881) and finance and insurance (€851), while lowest salaries were recorded in the area of accommodation and food service activities (385€) and in the trade sector (€313).
PUBLIC FINANCE Budget
According to the estimation made by the Ministry of Finance, in December 2012, source revenues of the Budget of Montenegro and state funds amounted to €125.6 million (3.8% of the estimatedGDP), thus being 0.8% lower than planned, while consolidated budget expenditures amounted to €152.3 million (4.6% of GDP), and being 39.9% higher than planned. This resulted in a Budget deficit of €26.7 million.
order to achieve the targeted level of the deficit in the budget for 2013th year.
INTERNATIONAL ECONOMIC RELATIONS
Foreign Direct Investments (FDI) During 2012, net FDI inflow amounted to €453.6 million, 16.6% more than during 2011. - FDI inflow: € 633.3 million, mostly in the form of sale of real estate (€226.2 million) and investments into companies and banks (212,7€). - FDI outflow: € 179.6 million (recording the y-o-y growth of 70%) mostly in the form of withdrawal of non-residents’ investments in Montenegro (€126.6 million)
External trade
Total exports during the period January-February 2013 totaled €59.2 million, thus showing a growth of 15.3% in comparison with the same period last year. On the other side, imports totaled €223.5 million, thus showing a growth of 8.3% and an export-import ratio of 26.5%. Montenegro is the most import dependent country along with China, Serbia and Greece, and the most export dependent country along with Serbia, Slovenia and Croatia. ■ (Sources: The Central Bank of Montenegro, Monstat, Ministry of finance of Montenegro, Employment Agency of Montenegro)
During 2012, the fiscal deficit has exceeded the planed level, resulting in an increase of public debt. The government has adopted some fiscal measures to help the budget, but according to IMF assessment, it will take measurable and significant additional measures on both expenditure and revenue sides, in
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