Montenegro's parliament on Friday adopted a budget for 2013 with a larger deficit projected to reach 2.73 percent and GDP growth forecast of 2.5 percent.
The budget, set at 1.257 billion euros ($1.66 billion), forecasts a significant reduction of up to 36 percent in public spending, while directing more funds towards welfare.
"We plan to protect the most vulnerable categories" in Montenegro, said Finance Minister Radoje Zugic during a debate in parliament.
The government estimated a public debt growth of 54.5 percent of gross domestic product (GDP), up from 52 percent.
The key revenue is expected to come from the collection of taxes in this former Yugoslav republic of 625,000 inhabitants.
The budget was backed by 44 lawmakers, while 33 in the 81-seat parliament voted against it.
Last week, Zugic said the government was planning to borrow 250 million euros.
"We plan to spend an increased amount in interest-based repayments, as well as in strengthening the judiciary and welfare in the country", Zugic said.
The government also revealed plans to increase the income taxes from nine percent to 12 percent on salaries and pensions exceeding 270 euros.
Montenegro's economy grew by 2.7 percent in 2011, but the government of Prime Minister Milo Djukanovic forecasts an expansion of just 0.5 percent this year.