Montenegro’s recent issuance of €850 million in government bonds, with a seven-year maturity at an interest rate of 4.875%, has raised concerns about the country’s fiscal sustainability. Professor Maja Baćović from the University of Montenegro highlighted that refinancing public debt only postpones solving fiscal imbalances, as current expenditures are burdened by higher interest payments, and there is no structural alignment between public spending and the need to reduce public debt.
Baćović explained that this bond issuance refinances maturing debt at higher interest rates than those at which the debt was initially incurred, indicating continued reliance on non-productive borrowing. The interest payments, which make up 5% of total budgetary expenses, leave limited room for debt repayment or funding development projects. The increasing reliance on non-contributory budget revenues, like general taxes, instead of contributions to the pension and health systems, further limits fiscal flexibility.
While the government claims that the new debt will cover obligations from previous administrations and not fund current spending, there are concerns about the transparency of these claims. Dr. Vojin Golubović, a researcher at the Institute for Strategic Studies, noted that Montenegro’s bond issuance at nearly 5% interest is significantly higher than the rates offered by other regional countries, such as Bulgaria, Italy, and Greece, which could indicate challenges in fiscal policy and public financial management.
Golubović also raised concerns that this borrowing might not solely be for refinancing but may be used to cover the growing budget deficit, which was over €300 million in the last months of 2024. The deficit is expected to increase in 2025, with public debt rising by €956 million compared to 2020, indicating that part of the budget is being financed through debt.
Despite these concerns, the government insists that the bond issuance demonstrates fiscal stability and that Montenegro remains an attractive investment destination. However, Golubović cautioned that the strong demand for bonds could be more about the high-interest rates offered rather than investor confidence in fiscal stability.
Baćović concluded that while the country’s credit rating remains stable, improvements could lead to lower interest rates on future bond issuances, signaling a more favorable fiscal outlook for Montenegro.
