The International Monetary Fund (IMF) has projected that Montenegro’s general government debt will reach 82% of projected GDP by 2019 due to the construction of the Bar-Boljare motorway. This will expose the country’s economy to risks and limit the government’s ability to implement other important investments.

Montenegro’s public debt stood at €2.3bn at the end of June, equalling 60.6% of the full-year GDP forecast, according to the latest available finance ministry data. The government expects it will rise further in the coming years. In 2019 it is expected to reach 79.5% of the projected GDP compared to 70.7% estimated for 2016. The debt should then start declining, reaching 74.1% of GDP in 2021, according to government estimations.

“The country’s capacity to respond to temporary external or domestic economic shocks has likewise been diminished because of the high level of debt. Finally, large projected government refinancing needs for maturing debt will require some recourse to external markets and will expose Montenegro to more volatile international financial markets,” the IMF said in a statement following a mission to Montenegro that ended on March 1.

It added that the government will be able to spend up to €150mn a year on other capital needs, which would be equal to 3.5% of GDP. The sum would be insufficient as the country needs to invest around €1.5bn - ten times that level - in the environmental area alone to meet the requirements of the European Union. Funding for other high-return investments in public infrastructure, health, education, and social protection will also be very limited, IMF said.

The government in Podgorica has already taken steps to improve fiscal discipline this year. According to the 2017 budget plan, revenues should rise thanks to a set of measures including an increase in gasoline excises, improvements in tax administration and collection from a tax debt restructuring programme. At the same time, the government has cut social spending and public wages.

The IMF has slightly reduced its projection for Montenegro’s economic growth in 2017 to 3.25% from 3.6% forecasted in October. The forecast reflects the positive demand effect from the highway and other private investments, but also some negative impulse from the adjustment to the non-highway budget. In 2017, economic growth will be driven by investment and to a smaller extent by private consumption.