In the next three years, Montenegro’s going to borrow €2.35 billion, of which 600 €million this year, and if the trend of high interest rates in borrowing continues, the cost of annual interest is going to exceed the realization of the capital budget, writes Pobjeda daily.
The interest rates Montenegro will have to repay are going to rise sharply due to additional borrowing and the repayment of cheap loans with expensive ones.
In the end of last year, government borrowing was done at an interest rate of 7.5% for funding current expenditures, while the country’s going to repay the favourable loans due 2023 with new loans with higher interest rates.
According to the Ministry of Finance, Montenegro has to pay a €448 million debt this year. Of that, 338 million refers to the principal amount, while the interests make up €110 million. In 2023, 2024 and 2025, a total of €2 billion of old loans are coming due (€1.55 billion principal, €430 million interest), and the repayment will be done with new loans.
“The interest rates of government borrowing (5.5% and 7.5%) at the end of last year are serious. If we have the information that the state paid 7.5 percent to get the money, of course someone will use this information in new borrowing negotiations and it’ll be the initial price they will ask for,” the economic observer, Oleg Filipovic, told Pobjeda daily, indicating that the IMF warned that the cost of realized borrowing was high.
Head of the IMF mission to Montenegro, Srikant Seshadri, recently said that funding the large fiscal deficit, along with increasing debt repayment over the coming years, will be challenging for Montenegro, particularly having in mind high interest rates. “In order to secure the sustainability of public finances, you’ll need to avoid further spending or reduce taxes which can’t be funded”.
It’s planned that the capital budget amounts to €202 million this year, but it’s unknown how it’s going to be realized. The Finance Minister, Aleksandar Damjanovic, during the discussion in the parliament on the amendments of MPs to this year’s budget, confirmed that they didn’t expect its full realization.
