1. Macroeconomic Outlook Trends and Challenges Igor Luksic Minister of Finance

2. Fiscal Reform GFS Introduction of the Treasury Tax System in accordance with EU Legislative Programme Budgeting Internal Audit New Payment System – Revenue Model

3. Basic Economic Facts GDP 2004 real growth 3,7% Budgetary deficit 2,1% Inflation rate 4,3% External public debt32,7% Total public debt44,8% Current account deficit 9,2% Unemployment rate22,6% Legal tender Euro

4. The Growth of the GDP GDP 2002 – 1 301 mln € 2002 – 1 301 mln € 2003 – 1 433 mln € 2003 – 1 433 mln € 2004 – 1 535 mln € 2004 – 1 535 mln € 2005 – 1 644 mln € 2005 – 1 644 mln € In 2004 instead of projected 2.7% the real growth reached 3.7% The goal for 2005 is 4.1%

5. The Decrease of the Budgetary Deficit Budgetary deficit has been falling in line with the IMF program It is expected to fall to 1.6% excluding FFPL Including FFPLs 2.9% of the GDP

6. The RPI Inflation Having euro as a strong and stable currency drove the inflation to single digits In 2004 instead of projected 4.5% inflation was 4.3% The goal for 2005 is 3.5%

7. Public Debt of Montenegro Total public debt fell from 85.9% in 2002 to 44.8% in 2004 thanks to the rescheduled debt to the World Bank, 51% Paris Club write-off and no committments to the London Club of creditors The external debt is 32.7% Domestic debt consists of the banking loans, old savings and T-bills In 2004 Montenegro received for the first time in its history the S&P credit rating BB for the long term bonds Huge privatisation receipts will be used to repay internal debt in order to imrove credit rating and to invest in infrastructure Reduction in the amount of the T-bills and loans will lead to the increase of the money supply and consequently to the drop of the interest rates

8. New Loans Montenegro does not draw any SDR from the IMF World bank – mainly structural reforms loans EIB,EBRD, KfW – mainly infrastructure oriented loans (reconstruction of the roads, airports, municipal infrastructure)

9. Privatisation and FDI After slow down in 2003 the FDIs increase Goal for 2005 achieved in the I quarter following succesful privatisation of Telecom KAP, Podgoricka Bank, Shipyard, part of the energy sector, hotels and so on to be privatised this year

10. Legal Framework and Business Barriers Business start-up fee: – Entrepreneur (sole proprietorship) – 1 EUR – Limited Liability Company – 1 EUR – Shareholder’s Company – 25 000 EUR – Bank – 5 000 000 EUR (license from Central bank of Montenegro) National treatment of foreign investors Free movemnt of capital will be introduced with the new Law on Capital transactions Free profit repatriation Government tries to identify and eliminate various business barriers

11. Fiscal framework VAT introduced in 2003 – 17% (basic food, books etc exempted) In 2004 PIT (now 15, 19 ad 22%) and social contributions cut by 10% In 2004 Corporate Income Tax cut to 9% Challenges are further simplification of the tax system, continual reduction of the government expenditures and tax burden and compliance with eurozone Mastrichts criterion

12. THANK YOU