World Bank Outlines Cooperation with Montenegro

The World Bank's Board of Executive Directors endorsed on June 12 a four year Country Partnership Strategy with Montenegro, and approved aSustainable Tourism Development investment of US$10 million for the country. This is the first such strategy for Montenegro, and was prepared following the country's independence in June 2006, and membership of the World Bank Group in January 2007.

Executive Directors welcomed Montenegro's recent initialing of a Stabilization and Association Agreement with the European Union. Consistent with the country's overarching goal of European integration, World Bank Group activities will support the Government's key priorities to:

· enhance sustainable economic growth, through increasing economic freedoms and strengthening the role of the private sector;
· build institutions and the rule of law; and
· improve the standard of living of citizens, through efficient education, health and social protection systems.

Executive Directors noted that Montenegro is well placed to benefit from the solid record of reform and transition over the past decade. If current strong growth and gains are to be continued, however, the Directors noted that Montenegro will need to continue to push ahead with reforms to strengthen a market-based economy, including maintaining appropriate macro-economic policies, putting in place a policy framework to encourage investment in the energy sector, and improving labor market flexibility to promote job growth. Efforts to improve transparency and build public administration capacity will also be critical for Montenegro to continue to move toward European integration. Strong environmental safeguards will be crucial to ensure that rapidly growing tourism development is sustainable.

World Bank investments are likely to focus on working with the Montenegrin Authorities to: move toward compliance with European standards and to access potential European Commission regional and rural development funds - particularly for the poorer northern regions; strengthen environmental management, which is critical for sustainable tourism; improve the business environment and security of land title by strengthening the cadastral agency and streamlining municipal licensing and permits for businesses; further strengthen social service delivery, including health, education and pension reform; undertake reforms to improve the long-term sustainability of electricity supply; and assist in designing investments in critical road infrastructure as well as in efforts to mobilize both public and private financing for such transport investments.

In support of these goals, the World Bank will make up to US$90 million in financing available to the Government of Montenegro until 2010 for new investments. New assistance will build on support that the World Bank Group has provided to Montenegro since a separate program was established in 2001. Active World Bank lending projects that are currently being implemented by the Government of Montenegro total about US$30 million.

In addition, the World Bank Group, through the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA), will also continue to offer support to encourage private sector investments in Montenegro. IFC activities will focus on support to improve the business environment, including through technical assistance provided through the Private Enterprise Partnership for South East Europe, and potential investments in infrastructure, financial markets, tourism, and other sectors in which opportunities may be available. IFC's current investment portfolio in Montenegro is valued at over US$18 million. MIGA also has scope to provide guarantees to eligible foreign companies seeking to invest in Montenegro, which protects investments against the risks of transfer restriction, expropriation, breach of contract, war and civil disturbance. Investors from Montenegro into other developing countries may also receive coverage.

The US$10 million credit approved for the Montenegro Sustainable Tourism Development Project (MSTDP) will be provided on concessional terms by the International Development Association (IDA). The Project aims to assist the country in designing and implementing an integrated approach to coastal zone management to reduce environmental degradation and foster environmentally sustainable tourism.

The Government of Montenegro is currently moving ahead with a multi-pronged reform agenda which aims to protect the coastal zone, and at the same time foster sustainable high quality tourism as a main contributor to economic growth. Tourism now contributes about 15 percent of GDP, accounts for 15 percent of employment, and is Montenegro's second largest source of foreign exchange. One of the main bottlenecks for sustainable tourism development is insufficient water supply at the coast, which is one of the highest potential tourist destinations on the Adriatic Coast. Another important concern is the acceleration of environmental degradation on the coast.

In addition to strengthening Government capacity for land-use planning and protection to guard against uncontrolled construction and development, the MSTDP will finance investments for the Continental and Southern branches of the Regional Water Supply Scheme to provide water from Lake Skadar to the Municipality of Bar. A follow on investment (MSTDP 2) envisaged in 2008, is expected to extend water supply to the other cities under the Southern Branch of the Scheme, including Ulcinj and the tourist areas of Valdanos and Velika Plaza.-World Bank