Montenegro’s Ministry of Finance recently disclosed that by the end of March, the country’s public debt, excluding deposits, had escalated to €4.67 billion, representing 66.36% of the nation’s GDP. Including deposits, the total debt drops to €3.89 billion, equivalent to 55.36% of GDP.
Breakdown of deposits and gold reserves
As of the end of March, Montenegro’s deposits totaled €774.24 million. This sum includes 38,447 ounces of gold, valued at €78.81 million, accounting for 11.01% of GDP.
Analysis of external and domestic debt
The Ministry’s data highlights that Montenegro’s external debt reached €4.16 billion by the end of March, which is 59.09% of GDP. This figure marks an increase of €639.36 million compared to the same period last year, reflecting a significant contribution to the rise in deposits.
- “Deposits at the end of March were €621.83 million higher compared to the end of 2023,” the Ministry reported.
Montenegro’s domestic debt was €511.29 million, or 7.27% of GDP, which is €31.32 million lower than at the end of the previous year.
- The reduction in domestic debt is attributed to the lack of new credit arrangements domestically in the first quarter and the regular repayment of previous debts, including €20 million in government bonds issued in December and payments for earlier credit arrangements.
Increase in net public debt
During the first quarter, Montenegro’s net public debt increased by €608.04 million compared to the end of 2023, reflecting a GDP ratio increase of only 7.07%.
- “The rise in debt is primarily due to the increase in external debt resulting from the issuance of bonds on the international market. According to the Budget Law for 2024 and the Decision on Montenegro’s Borrowing for 2024, the country is authorized to borrow up to €650 million to cover this year’s budget shortfall. Additionally, there is an option to borrow an extra €500 million either domestically or internationally for debt refinancing and creating a fiscal reserve.”
On March 6, 2024, the Ministry, in collaboration with four major banks, issued $750 million worth of bonds on the international market with a seven-year maturity and an annual interest rate of 7.25%, translating to an effective euro interest rate of 5.88%. This issuance marked Montenegro’s first dollar-denominated bond, attracting a wider range of investors.
- “Over 200 global investors demonstrated long-term confidence in Montenegro. The majority of investors came from the United States (47%), the United Kingdom (29%), and Continental Europe (22%), with the remaining 2% from other regions.”
Structure of state debt
The Ministry also emphasized that external debt dominates Montenegro’s debt portfolio, accounting for 89.05% of the total, while domestic debt constitutes 10.95%.
- To mitigate currency risk, the Ministry implemented a hedging arrangement for a dollar loan from the China Exim Bank for the Bar-Boljare highway project. This hedging transaction was conducted with four renowned European and American banks and involves the exchange of cash flows between the banks and the Ministry, effectively converting the dollar loan into euros to stabilize Montenegro’s debt portfolio.
By the end of March, 98.61% of Montenegro’s debt was denominated in euros, significantly increasing from 81.33% at the end of 2023, while the share of dollar-denominated debt decreased from 17.14% to 0.26%.
Interest rate structure
In terms of interest rates, 83.22% of Montenegro’s public debt carries a fixed interest rate, ensuring the stability of the debt portfolio. The remaining 16.78% is subject to variable rates, primarily linked to the EURIBOR.
Guarantees and debt
As of the end of March, guarantees issued to both domestic and international creditors totaled €144.37 million, representing 2.05% of GDP. Of this, guarantees to domestic creditors amounted to €19.97 million, with €64.14 million in engaged funds, while guarantees to international creditors were €124.40 million, with €397.44 million engaged.
- Domestic guarantees primarily support capital projects, restructuring efforts, and the implementation of recovery plans for local governments. External guarantees are issued for various infrastructure projects, supporting the development of small and medium-sized enterprises, and modernizing transportation and energy infrastructure.
Credit rating
The Ministry noted that in the first quarter of the year, the credit rating agency Standard and Poor’s (S&P) improved Montenegro’s outlook from “stable” to “positive,” maintaining the credit rating at “B/B.”
- “This revision of the outlook to ‘positive’ reflects positive economic trends and fiscal outcomes, suggesting potential for a credit rating upgrade in the medium to long term,” the report concluded.
The Ministry emphasized that this revised outlook indicates positive economic momentum and favorable future expectations for Montenegro.
