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Business EnvironmentMontenegro economy briefing: Increased indebtedness of Montenegro

Montenegro economy briefing: Increased indebtedness of Montenegro


In March, Montenegro borrowed EUR 100 million from Deutsche Bank. Compared to previous borrowings, this borrowing is significantly less favourable, taking into account the very high variable interest rate that is linked to Euribor. Considering the high uncertainty and expectations that the Euribor will increase in the coming period, this would also mean more expensive repayment of the loan. According to the budget plan for this year, it is planned to borrow around EUR 600 million, so this borrowing from March represents part of the planned borrowing in 2023. This borrowing will affect the growth of the public debt, which at the end of 2022 amounted to EUR 4,102.2 million, making up 71% of GDP in 2022.


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Trends in public finances during the previous period imposed the need for borrowing this year. According to the budget for 2023, the amount of missing funds for financing public consumption is projected in the amount of EUR 705.2 million. These missing funds will be provided through borrowing, state deposits and income from the sale of property, of which borrowing is projected in the amount of EUR 599.2 million or 85% of the projected deficit. In this regard, Montenegro took out a loan in March to finance budget spending.

Montenegro borrowed EUR 100 million

According to the budget plan for 2023 and based on projected budget deficit, Montenegro will provide part of the missing funds through borrowing. In this regard, in March, Montenegro borrowed EUR 100 million from Deutsche Bank, with a repayment term of three years and with a grace period of one year. However, this borrowing was under significantly less favourable conditions compared to previous borrowings. The interest rate based on this loan is 9.2% which is related to Euribor. The currently high interest rate is not the only factor in unfavourable borrowing, but also the potential growth of the Euribor in the coming period, which will affect the loan repayment amount. Considering the variable interest rate, it is certain that the repayment of the loan will be more expensive. Unfavourable borrowing was certainly influenced by global trends and the growth of interest rates on the international market. However, the level of borrowing costs was also influenced by the state of public finances and prospects for trends in the coming period and situation in the economy in general.

Considering the projected borrowing, this represents only one-sixth of the total planned borrowing for this year. Therefore, additional borrowing is expected in the coming period, which may be even more unfavorable, taking into account the projected trends of interest rates, but also the state of the domestic economy and public finances. In such conditions of uncertainty, the question of borrowing, but also the sustainability of public finances, is a big challenge.

An important segment of borrowing is also the purpose of borrowing. The structure of the budget for this year shows an increase in the share of social benefits in relation to the capital budget. Namely, social payments represent 27.5% of the budget, while the capital budget makes up only 7.1%. This distribution of funds, which gives primacy to social benefits in relation to investments, will have consequences for the economy. Borrowing for financing investment projects has different consequences on the economy compared to borrowing for financing current consumption and social transfers. Social transfers have increased significantly during the last two years, when the Government introduced various forms of social benefits to the population, while capital spending was reduced. In general, the reduction of investment spending is reflected in the economy and GDP, because the multiplied effects of investments are lost. During the previous year, investments was less by 1.1% in real terms compared to 2021 (MONSTAT, 2023). On the other hand, it should be taken into account that the growth of social benefits does not contribute to the creation of new value.

The growth of budget expenditures due to the introduction of various forms of social benefits and the growth of consumption based on social transfers, but also higher expenditures for health (since in 2022 contributions for health insurance at the expense of the employed were abolished) and the growth of wages in the public sector, will affect the state of public finances. in the following period. According to the Program of the Government of Montenegro for 2023, the budget deficit in the period from 2023 to 2025 will range from EUR 365 million to EUR 428 million (which is the projected growth from 5.9% of the projected GDP in 2023 to 6.2% of the projected GDP in 2025). Therefore, the missing funds will increase in 2024 to EUR 842.1 million and in 2025 to EUR 1,196.6 million.

One of the parameters that affects the ability to borrow is the credit rating. Compared to the previous year, the credit rating of Montenegro remained at the same level in 2023. According to the “Standard & Poor’s” (S&P) credit rating of Montenegro is BB. This implies that the country can finance obligations, but there is a certain risk due to uncertainty. This level of credit rating is based on the favorable economic outlook for this year. The confirmation of the rating compared to the previous year will reflect the position of Montenegro in relation to potential borrowings from banks in the following period.

Public debt trends

Based on the 2022 Public Debt Report of the Ministry of Finance, at the end of 2022, the total public debt of Montenegro was at the level of EUR 4,102.2 million, which represents 71% of the estimated GDP for 2022. Compared to the end of 2021, the public debt in 2022 was lower by 1.5%. Considering that during 2022 there was no new borrowing based on a new loan, but funds were withdrawn based on already contracted loans, reduction of debt has been recorded.

External debt accounts for 86.7% of the total public debt, i.e. 61.4% of the estimated GDP for 2022. Almost two-thirds of the external debt refer to loans intended for financing budget spending, while slightly more than one-third (35.2%) related to development projects. Eurobond bonds have the largest share, which make up almost half of the external debt (49.2%), while a fifth of the external debt is the debt to the Chinese Exim Bank (19.7% of the external debt). Higher share has syndicated loans, which amounted to EUR 420.5 million or 11.8% of external debt (Syndicated loan PBG and PBG2).

The total domestic debt at the end of 2022 amounted to EUR 468.8 million or 11.5% of the total public debt and 8.1% of the estimated GDP. A third of the internal debt represents debt based on loans from commercial banks, while 30.4% of the internal debt represents debt based on domestic bonds (domestic bonds GB 24 and GB 26). A significant item of the internal debt is represented by obligations based on impairment (17.4% of the internal debt). Out of the total public debt, 1.9% refers to local government debt, which at the end of 2022 was at the level of EUR 75.9 million and which represents 1.3% of GDP for 2022.

Changes in the international market, i.e., the foreign exchange market and the money market, can affect the state of the state debt. First of all, the change in the exchange rate can contribute to the growth or decline of the level of the state debt, depending on the ratio of the euro to other currencies. In total 95.3% of the state debt, refers to euro debt, while 2.5% refers to dollar debt and 2.2% to other currencies. Compared to 2020, when the share of dollar debt was 15.2%, the currency structure was significantly changed, taking into account that the conversion of dollar debt with Exim Bank was carried out. Considering the very high share of euro debt, there is no significant danger of currency risk.

On the other hand, the interest rate risk is more pronounced, considering the interest rate structure of the debt. Of the total amount of state debt, 78.5% refers to borrowing with a fixed interest rate, while slightly more than a fifth of the debt is related to a variable interest rate. In a period of rising interest rates, with estimates of further growth of Euribor in the next period, this interest structure can be reflected in the level of current debt. Borrowing from March 2023 will further contribute to this.


The high public debt, which has been present in previous years, represents a challenge for the Montenegrin economy. Global trends and instabilities on the international market, as well as the state of the domestic market, public finances and the economy in general, will affect the possibility of borrowing this year. The unfavourable borrowing recorded in March 2023 is an indicator of the conditions and possibilities of borrowing in the following period, which, according to estimates, will be realized considering the estimated budget deficit and estimated missing funds. Unfavourable conditions for borrowing can be expected during the next period.


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