In the second quarter of 2026, Montenegro saw a reduction in its gross public debt, yet an accompanying decline in government deposits led to an increase in net public debt. This trend highlights the importance of maintaining liquidity as Montenegro gears up for additional infrastructure and reform-related borrowing.
As reported by the Finance Ministry, the gross public debt reached €5.02 billion by the end of June, which is approximately 58.5% of the projected GDP. The central government debt, excluding municipalities, stood at €4.997 billion, or 58.2% of GDP.
Gross public debt decreased by €111.1 million since March, with central government debt down by €109.3 million, primarily due to scheduled repayments and no new domestic borrowing during this period.
However, government deposits fell significantly by over €117 million, dropping from €650.5 million at the end of March to €533.4 million in June. Consequently, net public debt rose nearly €6 million to €4.489 billion, representing 52.3% of GDP, while net central government debt increased to €4.463 billion, or 51.9% of GDP.
This data presents a complex fiscal landscape; although Montenegro reduced its liabilities in the quarter, it utilized part of its cash reserves to do so. For creditors and investors, the government’s liquidity position remains critical as it provides a buffer against refinancing challenges and fluctuations in budget revenues.
External liabilities continue to constitute a significant portion of Montenegro’s debt structure, with foreign debt totaling €4.759 billion at the end of June—55.4% of GDP—showing a decrease of €44.6 million from the first quarter.
No new funds were drawn from recently signed loans during this quarter; however, Montenegro withdrew €48 million from previously established agreements while repaying €92.5 million in external principal.
The largest component of external debt consists of international bonds, amounting to approximately €2.79 billion or 32.4% of projected GDP for 2026. This reliance on bond financing makes Montenegro susceptible to changes in international interest rates and investor sentiment when refinancing existing obligations.
Domestic debt experienced a more pronounced decline, falling by €64.7 million to €238 million or 2.8% of GDP. The government repaid €67.3 million in domestic obligations without engaging in new local market borrowing; loans from commercial banks represented the largest share at €90.2 million.
During this quarter, project-related withdrawals totaled €48 million, including €20.6 million under the European Union’s Growth Plan and €14.8 million from International Bank for Reconstruction and Development facilities aimed at various projects.
Additional withdrawals included €10 million for patrol vessels for the armed forces, along with smaller amounts for water-supply and wastewater investments from Germany’s KfW Development Bank and a planned motorway section from the European Bank for Reconstruction and Development.
Four new loan agreements valued at a total of €185 million were signed during this period; however, no funds had been drawn from these agreements by the end of June.
The new financing includes allocations for various projects: €18 million for the Forests of Montenegro project, €40 million for waste-management reforms, and €27 million for healthcare institution upgrades. The largest agreement is a second tranche development-policy loan worth €100 million from the French Development Agency.
Since these agreements had not been utilized by the reporting date, they did not contribute to the June debt stock but represent potential future financing that could increase gross debt as projects progress.
Debt servicing costs amounted to €186.7 million during the second quarter, with principal payments totaling €159.9 million and interest payments reaching €26.9 million. Payments included €67.4 million to domestic creditors and €92.5 million to foreign entities.
The currency composition of Montenegro’s debt mitigates some risks typically associated with emerging-market borrowing; around 99.74% is denominated in euros while only 0.26% is in other currencies. Although Montenegro uses the euro without being part of the eurozone, this limits direct foreign-exchange exposure but also restricts access to an independent central bank that could provide liquidity support.
Interest rate risk is managed relatively well; fixed-rate liabilities comprise 79.4% of total government debt while variable-rate debts account for 20.6%, primarily linked to Euribor rates—this structure shields most liabilities from immediate rate hikes but does expose future refinancing needs to European monetary conditions.
Municipal debt reached €25.7 million or 0.3% of GDP, reinforcing that central government borrowing remains the primary source of sovereign exposure as calculated using a projected nominal GDP of €8.59 billion for 2026.
While Montenegro’s gross public debt stays below the EU’s benchmark of 60% of GDP, diminishing cash reserves pose challenges for absorbing fiscal shocks ahead as ongoing infrastructure projects and reforms will necessitate further financing.
The current debt profile benefits from euro denomination, predominantly fixed interest rates, and access to multilateral funding sources; however, reduced liquidity is a critical takeaway from Q2 as gross liabilities decreased but available resources declined even more sharply.
