The main achievements that have led to increased performance for Montenegro since the last assessment are as follows:

• The governance of tourism policies has markedly improved as a result of empowering local communities and streamlining sustainability measures. The establishment of the National Council for Tourism represents a step forward in inclusive decision making. With representation from both local communities and regional authorities, the Council addresses key tourism related challenges and promotes sustainable development in tourism. This inclusive policy making yields tangible results. Tailored subsidies, educational workshops, certification programmes and continuous networking with international associations all enhance sustainable destination management in the economy. These developments help Montenegro lead the way in sustainable tourism growth and innovation in the Western Balkans.

• The institutional framework for STI has been strengthened, boosting innovation activities. Since becoming operational in 2022, the Innovation Fund has initiated various financial support schemes to stimulate innovation and startup ventures across diverse sectors, emerging as the economy's primary vehicle for implementing innovation policies. While the operationalisation of Montenegro's flagship science and technology park (STP) has faced delays, another pillar of its STP is undergoing expansion. Montenegro has meanwhile inaugurated a centre of excellence and has successfully secured the establishment of a regional centre for cybersecurity capacity building. These advancements have been supported by increased government funding for STI, which more than doubled between 2022 and 2023, rising from EUR 4.1 million to EUR 10 million.

• Ongoing initiatives in the transport sector have improved internal and regional connectivity. Montenegro has the highest road infrastructure density in the region, with an average density of 72.6 km per area of 100 km². Since 2021 the government has approved a new national programme focused on the rehabilitation and maintenance of its rail systems, in addition to a programme aimed at developing and deploying intelligent transport systems in road transport. Montenegro has continued its efforts to bolster regional connectivity through its ongoing bilateral co-operation with Albania, Bosnia and Herzegovina and Serbia, which has led to the establishment and modernisation of several key rail and road border crossing points.

• New employment policies and programmes have enhanced labour market inclusivity. Although the employment rate of women in Montenegro remains below that of the EU (48.7% versus 67.7%, respectively), the economy boasted the smallest gender gap of the Western Balkan economies in 2022. This progress towards gender equality in the labour force has been underpinned by strengthened policy focus under the new National Strategy for Gender Equality 2021-25, as well as by the new pilot programme that aims to increase women’s activity rates. Ongoing efforts to align the existing Labour Law with the EU’s Work-Life Balance Directive demonstrate a commitment to strengthening workers’ rights by ensuring fair treatment and opportunities for all individuals.

To further improve its competitiveness and boost its economic convergence with the EU and OECD, Montenegro is encouraged to:

• Strengthen the governance of SOEs. Montenegro’s approximately 50 centrally-owned SOEs operate in a predominantly decentralised manner without a clear ownership policy to professionalise practices. Previous efforts to improve SOE governance and monitoring have stalled or been reversed. The absence of independence requirements for SOE boards, coupled with instances where the state bypasses boards in some SOEs to directly appoint the chief executive officer, constitute weaknesses that prevent SOE boards from shielding corporate decisions from political interference. Moreover, many SOEs fail to achieve significant rates of return or are operating at a loss, pointing to structural issues that hamper efficient resource allocation and ultimately distort the level playing field.

• Improve energy supply by ramping up decarbonisation efforts. Diversification of the energy supply is hindered by the absence of a comprehensive policy framework. The economy lacks a natural gas market due to inadequate infrastructure, and its renewable generation capacity has seen limited improvements. Despite being possible under the current legal framework, no new auctions have recently taken place to allocate renewable generation capacity, raising questions about the adequacy of incentives and competitive mechanisms for the deployment of renewables. Moreover, the economy’s continued reliance on thermal power plants and non‑compliance with the large combustion plants directive of the Energy Community puts into question the credibility of commitments made regarding fossil fuel phaseouts.

• Enhance the digitalisation of government services for businesses and citizens, while prioritising cybersecurity. Persisting challenges, such as insufficient capacities for digitisation in the public sector and limited digital awareness among Montenegrin society, are slowing down the digital transformation process. Despite having a well-defined legal framework for interoperability and e-identification, digital government services in Montenegro are trailing behind those of its Western Balkan counterparts. Technical challenges within the government data exchange system and delays in connecting public registers have created bottlenecks, hindering the digitalisation process and reducing the quality and accessibility of e-government services. Moreover, recent cyberattacks targeting the government's digital infrastructure, and the ensuing suspension of some electronic public services, highlight the pressing need for comprehensive cybersecurity measures that require increased investment in financial, technical and human resources.

• Consider further reforming tax policies for increased revenue to support the economy’s competitiveness. Montenegro can further broaden and diversify its tax base by improving the design of personal income tax (PIT) and corporate income tax, in addition to increasing health and environment-related taxes. Moreover, Montenegro would benefit from prioritising the implementation of the relevant guidelines on digital taxation given the exponential increase in online transactions for services and digital goods, particularly in the tourism sector. These developments necessitate the frequent revision of regulations to guarantee effective value added tax (VAT) collection. Including digital platforms in the process of VAT collection can also reduce administrative costs and improve efficiency. To address the challenges of certain long-term demographic trends, such as population ageing and high levels of emigration, PIT and social security contribution systems need to be restructured.