In the first half of 2026, Montenegro allocated over €33 million from its Equalisation Fund to assist less-developed municipalities, underscoring the ongoing reliance of many northern local governments on central fiscal transfers despite a backdrop of national economic growth.
The funds were distributed among 18 municipalities and constituted approximately 60% of the total €55 million earmarked for the fund for the entire year, as reported by Action for Social Justice. Notably, the 13 northern municipalities received about €21.2 million, representing nearly two-thirds of the total transfers in the first half of the year.
The municipality of Bijelo Polje received the largest single allocation at around €4.4 million, followed by Rožaje with more than €3.4 million, Berane with approximately €2.5 million, and Pljevlja with around €2.4 million.
This fund aims to mitigate disparities in municipalities’ capacities to finance public services through their own tax revenues. Its increasing relevance highlights one of Montenegro’s persistent economic challenges: while growth and investment are concentrated mainly in Podgorica and coastal areas, many northern municipalities continue to face issues such as lower employment rates, smaller populations, and reduced local revenue generation.
The disparity has led to a structural dependence on fiscal redistribution. Municipalities with robust tourism or property markets benefit from significant revenue streams derived from real-estate taxes, construction fees, local charges, and business activities. In contrast, regions experiencing depopulation and limited private-sector investment often struggle to generate adequate local revenue.
The Equalisation Fund is designed to help less-developed municipalities sustain essential services that their own revenue sources cannot adequately support. The significance of this mechanism is evident in its first-half distribution figures, which indicate substantial transfers relative to the operating budgets of many smaller municipalities. For northern authorities, these funds can cover salaries, utility costs, maintenance, and other recurring public service expenses.
However, heavy reliance on these transfers raises developmental concerns. While equalisation can stabilize municipal finances, it does not inherently foster new economic activity. A municipality may achieve budget balance through transfers while simultaneously experiencing population decline and a lack of private investment.
This distinction is critical for Montenegro’s regional policy framework. Although the fiscal system can compensate for weak local tax bases, it cannot independently generate productive businesses or create jobs. Therefore, northern municipalities remain reliant on national infrastructure and investment strategies to improve their economic conditions.
The government is currently pursuing several large-scale projects that may eventually alter this dynamic. Key initiatives include extending the motorway from Mateševo toward Andrijevica, rehabilitating railways, investing in energy projects, and developing tourism opportunities aimed at enhancing connectivity and creating new prospects outside the coastal regions and Podgorica.
Pljevlja is also set to receive considerable investment related to transitioning away from coal dependency, including a proposed heating and energy-efficiency program valued at approximately €50 million, which is being prepared with support from the World Bank.
If successful, these investments could diminish long-term dependence on fiscal transfers by attracting businesses and expanding job opportunities; however, tangible effects are expected to take years to materialize. In the interim, municipalities still require funding for basic service provision.
The concentration of Equalisation Fund disbursements in northern areas reflects an immediate need for financial support amid persistent regional disparities in Montenegro’s economic landscape. Various factors contribute to this divide: geographic challenges increase infrastructure costs in mountainous regions; population decline diminishes tax bases; and younger workers frequently migrate toward Podgorica or coastal areas, further weakening local labor markets.
This situation creates a self-reinforcing cycle where diminished investment leads to fewer job opportunities, prompting further migration that reduces local demand and revenue streams. While equalisation transfers can alleviate some fiscal pressures associated with this cycle, they do not necessarily reverse its effects.
The quality of local spending becomes crucial under these circumstances. If transfers are primarily directed toward covering current expenditures, municipal finances may stabilize without fostering economic growth. Conversely, if they enable municipalities to co-finance infrastructure projects or enhance services that attract residents and businesses, they could yield greater developmental benefits.
The administrative capacity at the local level plays an equally important role as the amount of funding received. As Montenegro gains access to additional EU programs, municipalities will soon be eligible for initiatives like the European City Facility, which offers grants and technical assistance for energy and climate investment projects.
The availability of EU and international financial institution programs for water management, energy efficiency upgrades, and local transport improvements presents opportunities; however, effective project preparation is necessary to secure these funds. Smaller municipalities often lack the administrative capacity required for project documentation and execution.
This may lead to a paradox where municipalities with the greatest needs are least equipped to utilize development funding effectively. Thus, equalisation policies increasingly intersect with capacity-building efforts aimed at enhancing local governance capabilities.
The recent distribution figures from the Equalisation Fund illustrate more than just municipal financial health; they reveal significant disparities within Montenegro’s economic geography. Approximately €21.2 million out of €33 million allocated has gone to 13 northern municipalities, highlighting persistent fiscal needs in these regions.
The current mechanism functions as intended by aiding poorer local tax bases through support from wealthier ones. However, long-term success will hinge on whether future investments can reduce the number of municipalities reliant on substantial transfers merely for basic public service provision.
