Its huge cost in comparison to Montenegro’s tiny economy has caused the Chinese-funded Bar-Boljare motorway to ring alarm bells among international financial institutions and rating agencies. 

Bar-Boljare will connect Montenegro’s largest port, Bar on the Adriatic coast, to the Serbian border, from where another road will lead to the Serbian capital, thereby linking the port and other Montenegrin capitals to the international transport corridors running through Southeast Europe. 

Once all this infrastructure is completed, Bar-Boljare is set to bring benefits to Montenegro by decreasing transit times to and from the port, as well as boosting the country’s already strong tourism sector. Ports along the eastern Adriatic are seen as potential gateways for more imports of Chinese goods to Southeast and Central Europe, despite the urgent need for investment at many of them. 

Yet after repeated delays, better access to Bar is still some years away, and in the meantime the costs of building the Bar-Boljare highway– estimated to be the most expensive road per kilometre in Europe because of Montenegro’s mountainous terrain – is putting heavy pressure on the country’s finances. 

The 170km motorway will cost a total of €809mn, of which €689mn is being funded by a loan from China Exim Bank. Podgorica decided to start with the most technically challenging (and expensive) section of the road, the stretch between Smokovac and Matesevo. This, like the rest of the highway, is being built by the China Road and Bridge Corporation (CRBC) alongside local contractors, and is scheduled for completion by May 2019. According to CRBC, around 60% of the route is made up of bridges and tunnels. 

Given the size of the project, its construction is set to be the main driver of Montenegro’s already rapid GDP growth over the next few years, a factor which helped the government to push approval for the project through the parliament back in 2014 despite an untransparent selection process. 

However, it is also pushing up the country’s debt burden. Rating agency Moody’s responded in May 2016 by downgrading Montenegro's sovereign ratings to B1, citing the financing of the road, which it noted “triggers a significant increase in the government's debt-to-GDP ratio. This raises fiscal risks and reduces fiscal shock absorption capacity”.

“The project's overall costs are estimated at more than 23% of 2014 GDP, which will push the government's debt burden to close to 80% of GDP by 2018,” the rating agency said. In addition, “given the challenging terrain on which the highway is being built, there is a significant risk of cost overrun”. 

The same month, S&P affirmed its B+/B rating for Montenegro but cut the outlook to negative from stable, again citing an expected hike in public debt and the risks related to cost overruns on Bar-Boljare. 

The International Monetary Fund (IMF) has also issued several similar warnings, estimating that Montenegro’s government debt will rise to 82% of GDP by 2019 (or as high as 89% of GDP including guarantees). It also warns that as spending is directed towards the motorway, other areas such as healthcare and education, as well as investments needed to prepare Montenegro for EU membership, will suffer. 

“Non-highway capital spending over the next five years may only amount to some €125mn‑€150mn (around 3.5% of GDP) per year,” the fund said in February. “This compares to estimated investment needs in the environmental area alone (water sanitation, air pollution, and global warming) of possibly almost €1.5bn in order to meet EU standards.”