Cash-strapped Montenegro borrows biggest loan in decades

Prime Minister Zdravko Krivokapic with ministers after the government session in Podgorica. Photo: Government of Montenegro

Montenegro took out a loan of 750 million euros, its biggest single loan in two decades, to fill large gaps in the 2021 budget.

On Wednesday, the Ministry of Finance and Social Affairs said the country had taken out the loan from BofA Securities, Citigroup, Erste and the Société General group, adding that it would be repaid over seven years at an interest rate of 2 , 95%.

Minister Milojko Spajic said this was the only way to keep public finances stable after the country spent large sums to deal with the fallout from the COVID pandemic.

“Montenegro has an economic future today. The massive layoffs, cuts in wages and pensions and other scenarios envisaged for the new government have been avoided in the best possible way, ”Spajic told the media. “Money has been provided to repay old unfavorable loans and invest in our growth and recovery,” he added.

But the new loan will increase Montenegrin public debt, which was equal to 65% of GDP, at the end of last year. On September 24, Montenegro’s Statistical Office said GDP fell 20.2% in June and the country could end 2020 with a public debt of around 90% of GDP.

On October 14, the IMF warned that in 2020 Montenegro would face its sharpest economic contraction of nearly 12.4% since gaining independence in 2006.

He urged the government to carefully plan for public investments and to refrain from undertaking significant new investment and infrastructure spending until the public debt is reduced.

A member of the opposition Social Democratic Party, Rasko Konjevic, accused the new government of Zdravko Krivokapic of continuing the costly economic policies of the recently overthrown Democratic Party of Socialists, the DPS.

“No tax debt collection… no spending cuts… and I guess the Democratic Socialist Party is backing it,” Konjevic noted on Twitter.

On October 2, the finance ministry said the budget deficit for the first eight months of the year was € 312 million, or 6.8% of GDP, stressing that the COVID-19 situation had reduced collecting revenue. Tourism, a major source of income for the country, has been hit hard this year by the pandemic.

Infrastructure spending also consumed cash. On March 7, the rating agency Standard & Poor’s downgraded its outlook on Montenegro’s ratings from positive to stable.

He noted the high cost of the Bar-Boljare highway, 169 kilometers long, estimated on its own at 45 percent of GDP.

In 2014, Montenegro took out a $ 944 million loan from China’s Exim bank to build the first section of the highway. The first annual repayment of $ 67.5 million is due next year. The first section was built by China Road and Bridge Corporation, CRBC.

On December 4, Parliament elected the first government in three decades that will not be led by President Milo Djukanovic’s DPS. New Prime Minister Krivokapic has said his so-called expert government of 12 non-party ministers will focus on the economy and reforms.

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