Montenegro plans to introduce tighter controls over public debt, state guarantees and capital spending from 1 January 2027, replacing predominantly annual fiscal management with a four-year framework overseen by an expanded Fiscal Council. The proposed Law on the Budget and Fiscal Responsibility would retain the 3 per cent of GDP deficit limit and 60 per cent public-debt ceiling, while introducing a mandatory corrective process if debt exceeds the threshold. At the end of March 2026, Montenegro’s public debt stood at €5.13 billion, equivalent to 59.9 per cent of GDP, leaving the debt ratio only marginally below the proposed trigger.
If the ratio exceeds 60 per cent, the government would be required to prepare a fiscal-convergence plan setting annual reduction targets, measures to lower debt and a deadline for restoring compliance. Where the debt ratio is already above the limit when the new rules take effect, the convergence programme would have to be incorporated into the next Fiscal Strategy. Until its adoption, the government would be required to prevent a further increase in the debt ratio.
The framework would allow temporary deviations in cases including severe economic disruption, natural disasters, epidemics, war, national-security threats, financial-sector interventions and other exceptional events with significant fiscal effects. Such departures would normally be limited to one fiscal year, although extensions would be possible. Higher defence spending undertaken under international obligations would receive separate treatment, with the size and duration of any deviation specified in the Fiscal Strategy.
Four-year spending framework would set expenditure limits
The proposed Fiscal Strategy would cover four years, incorporating projections for revenue, expenditure, the budget balance and public debt, as well as a trajectory for net expenditure growth. That framework would establish medium-term spending ceilings for ministries and other budget users. Permanent measures, including public-sector wage increases, tax reductions and new transfers, would therefore have to be assessed beyond a single annual budget.
If no Fiscal Strategy or net-expenditure path had been adopted, expenditure could not increase faster than projected nominal GDP growth. The restriction would be treated differently where an economic contraction was expected. Net expenditure would exclude interest payments, EU-funded expenditure and associated national co-financing, cyclical unemployment spending, and temporary or one-off measures. The exclusion of EU financing and national co-financing is intended to preserve the government’s capacity to absorb European funds. Interest payments would also remain outside the expenditure-growth calculation.
Fiscal Council would monitor broader public-sector risks
The proposed legislation would expand the responsibilities of Montenegro’s Fiscal Council to include assessments of government economic and fiscal forecasts, annual and supplementary budgets, the Fiscal Strategy, final accounts and debt-management strategy. Its analysis would also cover risks associated with demographic ageing, pensions, healthcare, concessions, public-private partnerships, municipalities and state- or locally controlled companies.
Public authorities could therefore remain within formal debt limits while accumulating obligations through guarantees, loss-making public enterprises, concessions or contracts generating future payments. If the government, Ministry of Finance or another public authority rejected a Fiscal Council recommendation, it would have to provide Parliament with a written explanation and publish it within 30 working days.
State institutions, municipalities and majority publicly owned companies would be required to supply information requested by the council within 15 working days, or within eight days where the information was needed for an opinion subject to a statutory deadline. The council would consist of three professional members appointed by Parliament. Candidates would be nominated respectively by Parliament’s Economy Committee, the president and the government. Members would serve six-year terms, renewable once, and would be prohibited from membership in political parties.
State guarantees would be limited to 15% of GDP
Outstanding state guarantees would be capped at 15 per cent of GDP and could be issued only for capital projects. Entities receiving guarantees or on-lent state borrowing would pay the state budget a risk charge equivalent to 1 per cent of the guaranteed or loan amount, payable within 30 days of the relevant agreement being signed.
Before issuing a guarantee, the Ministry of Finance would assess the borrower’s repayment capacity, the resulting fiscal exposure and available collateral. Long-term borrowing by municipalities and majority publicly owned companies would require prior government approval. Public companies would also have to report each loan drawdown and regularly provide information on outstanding debt and repayments.
The proposed ceiling could affect financing for large energy, transport and municipal projects where several investments require sovereign guarantees simultaneously. Stronger public companies could instead borrow against their own creditworthiness or use project-finance structures based on contracted revenues and project assets. Projects that cannot obtain financing without a government guarantee could face delays until their economic returns become clearer or grant funding becomes available.
Municipal budgets would require tighter central oversight
Municipalities would face additional controls over borrowing and annual budgets. A local assembly would not be able to adopt its budget if the Ministry of Finance issued a negative opinion. If the ministry did not respond within 15 working days, its opinion would automatically be considered positive.
The proposed mechanism would strengthen central oversight of municipal fiscal risks, including arrears, guarantees and liabilities accumulated by municipal utility companies. Municipalities with stronger revenue positions and credible investment programmes would operate under clearer standards, while those dependent on central transfers, short-term refinancing or borrowing by municipal companies would face greater pressure before undertaking new commitments.
Public investment projects would enter a central register
The Ministry of Finance would create an electronic register of public investments undertaken by the state, municipalities, public institutions and state- or municipality-controlled companies. Public-private partnerships would also be covered. Part of the register would be publicly accessible and would have to be updated at least every three months.
Projects could not be included in the capital budget without a prior formal appraisal covering economic justification, fiscal affordability, financial sustainability, implementation readiness and fiscal risks. Climate and environmental risks would also be assessed where applicable. The requirements would apply regardless of whether a project was financed through the state budget, borrowing, an EU institution, a public company or a private partner. Emergency and national-security investments would be exempt. The proposed register would provide information on the progress and readiness of capital projects and could identify delays, repeated cost changes and overlapping commitments.
Project assessments would need to account for lifecycle costs rather than only annual budget allocations, including future construction phases, maintenance requirements, guarantees and availability payments.
New penalties would apply to unlawful budget spending
The draft law would strengthen measures against unauthorised or unlawful expenditure. If the budget inspectorate identifies misuse of funds, the Ministry of Finance could restrict an institution’s financing, block access to budget reserves and prohibit transfers between expenditure categories. A budget user could also face a one-year ban on new hiring, variable salary payments and service-contract engagements.
Officials who intentionally or through gross negligence cause financial damage would face personal liability. Proposed fines for unlawful spending, commitments exceeding approved budgets or failure to submit financial reports range from €600 to €6,000. Other responsible persons would generally face penalties of €500 to €2,000.
Fiscal-risk and tax-expenditure reporting would expand
Future budget proposals would include a fiscal-risk statement covering state guarantees, on-lent borrowing, public-private partnerships, concessions, litigation, municipal and public-company debt, arrears, natural disasters and climate risks. The government would also quantify tax expenditure, including revenue forgone through exemptions, deductions, relief measures and reduced tax rates.
A simplified citizens’ budget would have to be published within 15 working days after the budget proposal was submitted to Parliament and would also be provided in machine-readable form. Implementation would be phased. The medium-term budget framework, revised budget calendar and net-expenditure rule would begin in 2028. Tax-expenditure estimates would first accompany the 2029 budget, while programme budgeting for municipalities would begin on 1 January 2030.
Calculation of Montenegro’s deficit and public debt under the EU’s ESA methodology would start once the country joins the European Union. Until then, fiscal compliance would be assessed using the domestic cash-based methodology covering the state and municipalities. The proposed framework is scheduled to begin applying in 2027, with the public-debt ratio already at 59.9 per cent of GDP at the end of March 2026.
