Montenegro has generated a cumulative €93.4 million financial benefit through currency-hedging arrangements linked to the Chinese loan that financed the priority section of the Bar–Boljare motorway, reducing fiscal exposure to exchange-rate volatility while lowering the outstanding value of one of the country’s largest external liabilities.
Cumulative Financial Benefit Reaches €93.4 Million
According to the Ministry of Finance, the cumulative gain has been built through three separate transactions since 2021. The original hedging arrangement produced savings of approximately €27.72 million, while its termination in June 2023 generated €54.49 million from the derivative’s positive market value. A replacement hedge introduced in January 2024 has since delivered an additional €11.2 million in savings.
The total does not represent an annual budget saving, a reduction in the motorway’s construction cost or a write-off of debt. Instead, it reflects the combined effect of lower debt-servicing costs and the realised value of the earlier derivative transaction. The €54.49 million received upon terminating the first hedge represents nearly 58% of the cumulative benefit, with the remainder generated through reduced financing costs under the two hedging periods.
For an economy with projected 2026 GDP of €8.56 billion, the cumulative gain is equivalent to roughly 1.1% of GDP and exceeds 18% of the remaining euro-equivalent principal of the motorway loan. The result also limits the fiscal risks associated with servicing a large US dollar liability in a country where government revenues are collected almost entirely in euros.
Outstanding Exim Bank Debt Declines After Latest Repayment
The Ministry of Finance paid the 11th instalment of the Export-Import Bank of China (Exim Bank) loan on July 21, 2026, transferring $38.72 million, consisting of $32.79 million in principal and $5.93 million in interest.
Following the payment, the outstanding balance declined to $557.36 million, equivalent to approximately €512.89 million under the exchange rate embedded in the hedging arrangement. The ministry said 18 semi-annual repayments remain before the loan reaches its scheduled maturity in January 2035.
The hedging transactions have not altered Montenegro’s contractual obligations to Exim Bank, which continues to receive repayments in US dollars under the original agreement. Instead, the swaps modify the currency and interest-rate profile of the government’s liabilities. Montenegro makes predetermined euro-denominated payments to international banking counterparties participating in cross-currency swaps, while those institutions provide the dollars required to service the loan.
Motorway Loan and Initial Currency Protection
The original financing agreement was signed in 2014 to fund construction of the approximately 41-kilometre Smokovac–Mateševo section of the Bar–Boljare motorway. The project was built by China Road and Bridge Corporation, while Exim Bank provided a US dollar-denominated loan carrying a contractual interest rate of 2%. The scale of the borrowing relative to Montenegro’s economy, together with construction cost overruns and limited initial traffic revenue, made the motorway loan a recurring issue in assessments of the country’s sovereign debt sustainability.
Montenegro first introduced protection against exchange-rate risk in 2021, when the Ministry of Finance arranged a cross-currency swap covering approximately $818 million of outstanding debt. The transaction fixed the exchange rate at roughly €1 to $1.18 and reduced the effective euro interest rate to a weighted average of approximately 0.88%, producing savings of €27.72 million during its operation.
The government ended that arrangement in June 2023, realising €54.49 million from its favourable market value. While the transaction delivered an immediate fiscal benefit, it also returned the loan to an unhedged dollar position until replacement protection was secured.
Replacement Hedge Extended Until 2028
A new hedging structure was concluded in January 2024 with four European and US banks under standard international swap documentation. The agreement converted $754.07 million of Exim Bank exposure into approximately €693.7 million at an average exchange rate of €1 to $1.087. Montenegro initially paid a fixed euro interest rate of 0.98%, compared with the 2% interest applicable to the underlying dollar loan.
The January 2024 repayment, which would have cost approximately €37.24 million at prevailing exchange rates, was serviced through the swap for €33.69 million, generating savings of about €3.55 million. The July 2024 repayment produced an additional saving of around €3.2 million.
By July 2025, cumulative savings under the replacement hedge had reached €12.6 million, although subsequent exchange-rate movements reduced the cumulative comparison in the latest official calculation to approximately €11.2 million. In April 2025, the Ministry of Finance amended the transaction and extended hedging protection until July 2028. Under the revised terms, the fixed euro interest rate applicable from 2026 increased to 1.46%, compared with the initial 0.98%, reflecting changing market conditions while remaining below the original 2% Exim Bank rate. The extension covers six additional loan instalments and retains provisions allowing the government to reassess the structure as financial markets evolve. The ministry described the extension as protection against renewed US dollar volatility.
Public Debt Structure Shifts Toward Euro Exposure
The hedging programme has significantly altered the composition of Montenegro’s public debt portfolio. At the end of March 2026, 99.74% of central government debt was effectively denominated in euros, while only 0.22% remained in US dollars and 0.04% in Special Drawing Rights (SDRs).
The Ministry attributed this outcome to cross-currency swaps covering both the Exim Bank motorway loan and Montenegro’s 2024 US dollar Eurobond.
Despite improvements in the currency profile, Montenegro’s debt burden remains substantial. Gross general government debt stood at €5.13 billion, equal to 59.9% of GDP, at the end of March 2026. After deducting government deposits of €650.5 million, net general government debt totalled €4.48 billion, or 52.3% of GDP.
Foreign debt amounted to €4.80 billion, while international bonds represented nearly €2.79 billion. Before the July repayment, the Exim Bank motorway loan was valued at €543.1 million, equivalent to 6.3% of projected GDP. Following the latest instalment, the balance declined to approximately €512.89 million. The first-quarter debt report also showed that 79.1% of central government debt carried fixed interest rates, with the remaining 20.9% primarily linked to Euribor.
Refinancing Schedule Remains a Key Consideration
Although the combination of euro-denominated liabilities and fixed interest rates has reduced exchange-rate and interest-rate volatility, Montenegro continues to face significant refinancing obligations. The country has a €750 million Eurobond maturing in December 2027, followed by a €500 million issue due in 2029, euro-equivalent obligations associated with its $750 million 2024 bond maturing in 2031, and an €850 million Eurobond due in 2032. These repayments remain considerably larger than the semi-annual Exim Bank instalments.
The country’s debt-management framework has also been reflected in recent credit assessments. S&P Global Ratings affirmed Montenegro’s B+ sovereign rating and revised its outlook to positive in February 2026, while Moody’s maintained a Ba3 rating with a positive outlook.
The current hedging arrangement also introduces exposure to international banking counterparties, collateral requirements and termination provisions. Future pricing will depend on interest-rate differentials, the euro-dollar basis and Montenegro’s credit profile. The next major decision regarding the motorway loan hedge is scheduled for July 2028, when the current protection expires. At that stage, a significant number of Exim Bank repayments will remain outstanding through 2035, requiring the government to determine whether to extend, restructure or replace the existing hedging programme while also managing refinancing linked to the €750 million Eurobond maturing in 2027.
