Montenegro plans to introduce tighter controls over public debt, state guarantees and capital spending from 1 January 2027, with fiscal policy to be managed through a four-year framework and monitored 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 mechanism if the debt ratio exceeds 60 per cent of GDP.
The measure comes as public debt reached €5.13 billion, or 59.9 per cent of GDP, at the end of March 2026. The ratio leaves a narrow margin before the proposed debt threshold is breached, while the government plans continued investment in roads, energy networks, municipal services and projects linked to EU integration. Under the proposed system, exceeding the 60 per cent threshold would require the government to prepare a fiscal-convergence plan setting annual reduction targets, identifying corrective measures and establishing a deadline for restoring compliance.
Debt breach would require fiscal-convergence plan
If public debt exceeds 60 per cent of GDP, the government’s Fiscal Strategy would have to contain a detailed reduction programme covering planned measures, their estimated impact on the deficit and debt, and the period required to return to the prescribed limit. If the debt ratio were already above the threshold when the legislation takes effect, the government would have to include a convergence programme in the next Fiscal Strategy. Until its adoption, measures would have to be taken to prevent a further increase in the debt ratio.
The proposed rules allow temporary deviations during severe economic disruption, natural disasters, epidemics, wars, national-security threats, financial-sector interventions and other exceptional events with significant fiscal effects. Such exemptions would normally apply for no more than one fiscal year, although extensions would be possible. Higher defence spending undertaken under international obligations would be subject to separate provisions specifying the scale and duration of the deviation in the Fiscal Strategy. The effect of the debt rule will also depend on the composition of fiscal adjustment. Nominal GDP growth can lower the debt-to-GDP ratio through real economic growth and inflation even when the absolute debt stock remains high.
Four-year spending framework
The Fiscal Strategy would cover four years and set out projections for government revenue, expenditure, the budget balance and public debt, together with a trajectory for net expenditure growth. The framework would establish medium-term expenditure ceilings for ministries and other budget users. Permanent measures such as public-sector wage increases, tax reductions and new transfers would therefore have to be assessed beyond a single annual budget cycle.
Where a Fiscal Strategy has not been adopted or no net-expenditure path has been established, expenditure limits could not increase faster than projected nominal GDP growth. The restriction would operate differently when economic contraction is expected. Net expenditure would exclude interest payments, expenditure financed by European Union funds and associated national co-financing, cyclical unemployment spending, and temporary or one-off measures. Interest payments would therefore not directly trigger equivalent reductions in other expenditure when market rates change. EU-funded expenditure and related national co-financing would also remain outside the net-expenditure calculation.
Fiscal Council to monitor broader risks
The proposed legislation would expand the responsibilities of Montenegro’s Fiscal Council to include assessments of 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 companies controlled by state or local authorities.
The broader mandate is intended to capture liabilities that may not appear directly in recorded public debt, including state guarantees, losses at public companies, infrastructure concessions and contractual obligations that create future government payments.
If the government, Ministry of Finance or another public authority rejects a Fiscal Council recommendation, it would have to provide a written explanation to parliament and publish it within 30 working days. State institutions, municipalities and majority publicly owned companies would have 15 working days to provide information requested by the council. Where information is required for an opinion subject to a statutory deadline, the period would be reduced to eight days.
The council would comprise three professional members appointed by parliament. Candidates would be proposed by parliament’s Economy Committee, the president and the government respectively. Members would serve six-year terms, renewable once, and could not be members of political parties.
State guarantees capped at 15% of GDP
Outstanding state guarantees would be limited to 15 per cent of GDP and could only support capital projects. Recipients of state guarantees and on-lent government borrowing would pay the budget a 1 per cent risk charge on the value of the guarantee or loan. Payment would be due within 30 days of signing the relevant agreement. Before issuing a guarantee, the Ministry of Finance would assess the borrower’s repayment capacity, the state’s 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 provide regular information on outstanding debt and repayments. The guarantee ceiling would apply to financing requirements for energy, transport and municipal projects where several schemes seek sovereign backing simultaneously.
Municipal budgets face stronger oversight
Municipalities would be subject to tighter controls over borrowing and annual budgets. A local assembly could not adopt its budget if the Ministry of Finance had issued a negative opinion. If the ministry did not issue an opinion within 15 working days, the opinion would be considered positive. The proposed system would increase central oversight of municipal fiscal risks, including liabilities associated with municipal companies, arrears and guarantees.
Municipalities with stronger revenues and credible investment plans would operate under clearer fiscal standards, while those dependent on central transfers, short-term refinancing or borrowing by municipal companies would face tighter constraints on new commitments.
Capital projects require formal appraisal
The Ministry of Finance would create an electronic register of public investment projects involving the state, municipalities, public institutions and companies controlled by state or municipal authorities. Public-private partnerships would also be included. The register would contain a publicly accessible section and would be updated at least once every three months.
Projects could not be included in the capital budget before undergoing a formal appraisal covering economic justification, fiscal affordability, financial sustainability, implementation readiness and fiscal risks. Climate and environmental risks would also be assessed where relevant. The rules would apply irrespective of whether projects are financed through the state budget, loans, EU institutions, public companies or private partners. Emergency and national-security investments would be exempt. The register would cover project commitments beyond a single annual allocation, including later construction phases, maintenance, guarantees and availability payments.
Budget violations carry financial and administrative sanctions
The proposed law would strengthen measures against unauthorised or unlawful spending. Where the budget inspectorate identifies misuse, the Ministry of Finance could restrict funding for the responsible institution, prohibit access to budget reserves and prevent transfers between expenditure categories. A budget user could also be subject to 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 risks and tax concessions to be disclosed
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 expenditures, 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 submission of the budget proposal to parliament and would also be provided in machine-readable form. The law is scheduled to begin applying in 2027, with several provisions introduced later.
The medium-term budget framework, revised budget calendar and net-expenditure rule would take effect in 2028. Tax-expenditure estimates would first accompany the 2029 budget, while programme budgeting for municipalities would begin on 1 January 2030. Calculation of the deficit and public debt according to the EU’s ESA methodology would begin when Montenegro joins the European Union. Until then, compliance would be assessed under the domestic cash-based methodology covering the state and municipalities.
