Republic of Montenegro: Public Expenditure and ... - Vlada Crne Gore

5. PUBLIC INVESTMENT PLANNING AND INSTITUTIONAL
ISSUES: THE CASE OF TRANSPORT INFRASTRUCTURE
A. INTRODUCTION
5.1 Strengthening the institutional and budgetary processes for capital projects is essential if
Montenegro is to overcome the infrastructure gap created due to underinvestment and lack of
proper maintenance over the last decade. Capital investment in infrastructure remains low,
accounting for only for about 0.5 percent of GDP.
5.2 Reflecting years of underinvestment, the current state of infrastructure in
Montenegro is poor. With respect to public roads, the mountainous nature of the terrain,
coupled with the maintenance backlog during the last decades, has resulted in higher costs for
road users, and reduced Montenegro’s comparative advantages against other transit corridors.
The average driving speed is less than 50 kilometers per hour. In railways, due to inadequate
routine maintenance during the last 15 years, there has been progressive deterioration of the
quality of service with repeated traffic breakdowns particularly during the winter seasons. The
average traveling speed is between 30-50 km per hour and the infrastructure is in urgent need of
rehabilitation. Similar poor conditions exist in maritime transport, water and sanitation and
energy. The low numbers, and the current state of infrastructure, indicate there is clearly a need
for more capital investment. 61
5.3 This chapter reviews the challenges of capital investment planning in Montenegro,
largely from the perspective of the transport sector since transport represents a major component
of infrastructure investments. Other key infrastructure sectors such as water and energy, while
important, are not covered in this chapter. It is organized as follows. Section B reviews public
spending on transport infrastructure over the last three years. Section C discusses whether
Montenegro has the fiscal space to invest in infrastructure. Section D highlights the institutional
challenges with capital investment planning, including in infrastructure. Section E offers
conclusions and policy recommendations.
B. PUBLIC SPENDING ON TRANSPORT INFRASTRUCTURE
5.4 Montenegro’s domestically financed capital expenditure in 2005 accounted for only
about 2 percent of GDP (Figure 5.1). Externally financed capital expenditures are not included
in the Government data on capital expenditures, but are estimated to constitute slightly over 50
percent of total capital expenditures in Montenegro (Ministry of Finance). 62 Similarly, although
local governments/municipalities are involved in the provision of basic utilities, their capital
61 Further details on Montenegro’s transport infrastructure network as well as the regulatory framework are provided
in Annex 4.
62 An effort is underway to include capital investments financed through external project loans into the government
budget beginning in 2007.