GDP growth in 2006 was 8.2 percent. Preliminary data shows foreign investment in the first quarter of 2007 hit 195.4 million euros, triple what it was in the same period last year.

"Progress has been indeed amazing, and it shows on the growth rate and investment activities," Orsalia Kalantzopoulos, World Bank Country Director for South-East Europe told Reuters late on Monday.

"Also, private sector entry is coming as fast as the economy can absorb it, and the banking system is in a good shape."

She said Montenegro should continue reforms in the pension and tax systems, liberalise its labour market and rationalise its land registry to take account of the real estate boom.

The World Bank's concerns were mainly about the environment, mass tourism, and energy, she said.

Montenegro faces water shortages in the summer, especially in resorts along its Adriatic coast, and power shortages in the winter. It imports one third of its electricity consumption, half of which goes to aluminium smelter KAP at subsidised prices.

It proclaimed itself an 'ecological state' in 1992, but has shown little follow-up action. Visitors and residents alike complain about poor waste services, which can mean piles of garbage by the roadside and sewage draining near bathing spots.

Kalantzopoulos said Montenegro's real challenge was to preserve its environment in the face of the tourism boom.

"This is an economy with natural beauty, coast and mountains," she said. "Mass tourism does not really supplement environmental preservation very much."

SOLAR POWER

Beside tourism and real estate, Montenegro had ample potential in the energy sector, beyond hydro and thermal plants, Kalantzopoulos said. "Solar energy is the area ... one should look at very carefully, looking the changes in the global warming and environment," she added.

Montenegro joined the World Bank in January, but had been treated as a separate entity by the Bank already since 2001, reflecting the country's autonomous political system and the independent development of its economy.

In June, the Bank adopted a four-year strategy that focuses on supporting energy and other utility projects, such as water plants, building infrastructure for sustainable tourism and helping the country make the best possible use of EU funds.

Kalantzopoulos said the country's requirement for funding from international organisations was shrinking.

"Montenegro's need for financing from external sources is not very large anymore, so we are looking at somewhere between US$15 to $20 million a year," she said, noting the Bank wanted to remain engaged in areas which are critical for growth.