Thanks to a timely decision by the Ministry of Finance, Montenegro has successfully protected its national budget from potential losses tied to unfavorable currency fluctuations. The move involved an adjustment to the hedging arrangement on a dollar-denominated loan taken for the priority section of the Bar–Boljari highway project.
The ministry, with government approval, extended the hedge on the loan from China’s Exim Bank until July 2028. The extension comes with a provision allowing further adjustment to the arrangement should additional budgetary protection be deemed necessary.
According to the ministry, the revised arrangement locks in a fixed interest rate of 1.46%, significantly lower than the original 2% rate stipulated in the loan agreement. This measure ensures further financial benefits, adding to previous savings gained from favorable exchange rate movements.
The hedging agreement offers flexibility, allowing the Finance Ministry to continue monitoring market trends and taking decisions aimed at protecting fiscal sustainability and public finance stability.
“In light of ongoing global economic uncertainty—aggravated by announced tariffs and other market disruptions—we will continue to closely track currency movements that impact the legacy U.S. dollar loan from 2014, used to fund the first section of the Bar–Boljari highway,” the Ministry stated.
Given current market dynamics and medium-term forecasts suggesting a strengthening of the euro against the U.S. dollar, the decision was made to extend the hedge from January 2026 to July 2028. This extension covers an additional six repayment installments under favorable conditions.
The Ministry emphasized that this decision came at an ideal moment, noting that waiting any longer could have led to less favorable terms due to potential market deterioration, thereby increasing the state’s short-term costs.
The proactive approach not only prevented this scenario but also enabled long-term cost predictability—critical for stable public finance planning.
The Ministry also recalled that Montenegro had previously established a hedging arrangement in 2021, during the tenure of the 42nd Government, fixing the euro-denominated interest rate for two years and covering three repayment installments. However, a later decision by the 43rd Government to exit the hedge left the country exposed to currency risk without protective mechanisms.
In response, the current 44th Government reinstated the hedge in January 2024, with a mandatory review clause set for January 2026.
The benefits of the renewed arrangement are already apparent: the state budget saved approximately €12 million on three repayment installments as of January 2025.
Led by Minister Novica Vuković, the Ministry of Finance remains committed to responsible public debt management and risk mitigation, always aiming to safeguard the financial interests of the country and its citizens.
