Monaco’s latest budget report has highlighted the Principality’s strong financial position but warns of challenges ahead. With rising costs linked to major projects such as the new Princess Grace Hospital and the Fontvieille Commercial Centre, and a dip in real estate tax revenue from Mareterra, the report cautions that Monaco must carefully manage its investments to ensure long-term financial stability.
Monaco’s financial strategy and economic outlook for the coming years were placed under the microscope last week with the publication of the 2024 Annual Report by the High Commission for Accounts. Presented to Prince Albert II on 13th March by Commission President Christian Descheemaeker, the report offers an in-depth analysis of government revenue, public spending, and investment projects, while issuing strong warnings about potential fiscal challenges ahead.
Although the Principality’s finances remain robust, the report highlights concerns regarding slowing revenue growth, increasing public expenditures, and overspending on major infrastructure projects. With the Mareterra land extension project – a key driver of tax revenue – nearing completion, Monaco must now navigate a period of financial transition, ensuring that its ambitious investments remain sustainable.
A year of revenue growth, but at a slower pace
In 2023, Monaco recorded a budget surplus of €126.3 million, a significant improvement from €32.2 million in 2022. However, while total government revenue reached €2.2 billion, marking a 6% increase, this was a sharp decline from the 17.1% growth seen in the previous year. The report attributes this slowdown to the winding down of major real estate developments, particularly Mareterra, which had been a substantial contributor to VAT (TVA) income.
The surplus also doesn’t take into consideration the €179.9 million ‘Damage Advances’ CST account linked to ongoing legal disputes over construction defects at the Jardins d’Apolline housing complex , which will eventually impact the final budget figures.
Subject to this adjustment, the overall financial result for 2023—including the General Budget and Special Treasury Accounts—shows a revenue surplus of €163.8 million.
Tax revenue behind majority of budget surplus
Tax revenues were the primary source of government income, accounting for 75.5% of total revenue, up from 69% in 2022. The bulk of this came from VAT, which alone represented 52.4% of all state income. A significant portion of this VAT revenue was linked to the real estate sector, particularly Mareterra, as property sales and transactions generated a surge in tax income.
Corporate tax revenue also saw a remarkable increase, rising by 33.4%, largely driven by strong performances in Monaco’s financial sector. However, the government anticipates slower growth in this area moving forward, reflecting broader economic uncertainties.
Real estate-related tax income also grew in 2023, but with major development projects now reaching completion, experts warn that Monaco may not be able to rely on similar revenue streams in the coming years. This shift in income sources raises questions about how the government will maintain its current fiscal trajectory without increasing tax burdens elsewhere.
“While the results for Fiscal Year 2023 are satisfactory, the outlook for the following years is a cause for concern,” write the report’s authors. “Indeed, State revenues no longer have any reason to increase as they have for several years, particularly due to the completion of the Mareterra project, a source of revenue.”
Public spending on the rise
While Monaco’s revenue streams remain strong, public expenditures continue to climb. Ordinary expenditures rose by 13.5% in 2023, reaching €1.2 billion, driven primarily by higher operational costs, public subsidies, and growing wage commitments in the public sector.
Salaries and social charges for public sector employees increased to €392.1 million, marking a 6.7% rise due to salary adjustments and pension obligations. Staffing levels within government departments also expanded, following a brief period of stability in 2022.
Social and healthcare spending surged by 15.2%, with significant government subsidies allocated to public housing, healthcare initiatives, and support for vulnerable populations. The report highlights the long-term risks associated with these rising costs, warning that, without careful financial management, these commitments could strain Monaco’s budget in the future.
“To maintain a balanced budget in the coming years, it will therefore be necessary to control both ordinary spending and capital and investment spending, which raises different issues,” say the report’s authors.
Major infrastructure investments and budget concerns
Monaco’s three-year infrastructure investment plan (2024-2026) increased by 10.3% to a total of €10.1 billion. Among the most significant projects are the redevelopment of the Fontvieille Commercial Centre (€401.5 million), the digital transition initiative (€588 million), the renovation of the Louis II Stadium (€399.2 million) and the construction of the new Princess Grace Hospital (CHPG), which alone carries a staggering price tag of €1.25 billion – a 113% increase from the initial 2012 budget allocation of €664.5 million.
Similarly, the Waste Treatment and Recovery Centre, originally envisioned as a key part of Monaco’s sustainability strategy, has seen its projected costs escalate to €654.9 million. These examples have prompted calls for stricter budget oversight to prevent unnecessary financial strain.
The report also highlights the risks of long-term budgetary imbalances. Despite efforts to control spending, capital expenditures in 2023 amounted to €867.85 million, an 11.5% decline from the previous year. Even with this reduction, the financing balance to be covered after 2026 still stands at €2.71 billion, raising concerns about Monaco’s ability to sustain such high levels of investment without additional revenue sources.
A breakdown of public spending
Public spending saw a sharp rise across multiple sectors in 2023, with significant allocations to culture, international relations, public health, economic development, and sustainability. Cultural expenditure increased, with the National Museum’s deficit growing by 15.5% and the Scientific Centre’s by 1.5%, bringing their shortfalls to €7.8 million each. Overall public interventions surged by 33% to €314 million, while spending on international relations grew by 16.1%, including a €74 million three-year programme for development cooperation. In education and culture, €103.5 million was allocated, with €25.1 million directed to TV Monaco and €12.6 million to the Monte-Carlo Ballet Company. The centenary commemoration of Prince Rainier III accounted for an additional €5.7 million.
Public health and social solidarity spending rose by 15.2%, including €15.5 million for a price control scheme, while the National Housing Assistance budget decreased by 9.5% to €13.4 million. The Differential Rent Allowance, however, saw an 8.1% increase to €2.7 million. The Monaco Red Cross received a subsidy boost of 11.5%, bringing its funding to €3.6 million. Sports funding totaled €34.7 million, with stable subsidies of €2.1 million allocated to ASM Football Club and €1.4 million to the Monaco Yacht Club.
In economic development, €56.3 million was invested, including €10.6 million for commercial support and €8 million for public transport coordination. Sustainability initiatives remained a priority, with €19.9 million allocated to environmental efforts, of which €19.2 million was dedicated to Monaco’s energy transition programme. The Blue Fund, created to support Monaco’s sustainability and economic innovation efforts, accounted for an expenditure of €4.6 million and was subject to its own audit.
The challenge of future revenue streams
One of the key takeaways from the report is the warning that Monaco’s future revenue growth may not be as robust as it has been in recent years. The completion of major real estate projects like Mareterra means that tax revenue from property transactions will decline, making it necessary for the government to explore alternative sources of income.
With growing expenditures in healthcare, social security, and infrastructure, the financial burden on the state will likely increase. If Monaco does not find new revenue streams, the pressure to maintain budget surpluses will intensify, potentially forcing adjustments to current fiscal policies.
Recommendations and the path forward
The High Commission for Accounts has made several recommendations aimed at ensuring Monaco’s financial sustainability. Among the key suggestions are tighter budget oversight on large-scale infrastructure projects, more disciplined hiring within the public sector, and long-term pension reform to address rising social costs.
Maintaining liquidity within the Constitutional Reserve Fund (FRC) is also a priority. The report suggests that rather than distributing budget surpluses across various reserves, Monaco should focus on safeguarding its financial stability by reinforcing its main reserve funds.
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Main photo by Cassandra Tanti, Monaco Life
