bne IntelliNews -

Montenegro’s government expects to receive a €689mn loan from China’s Exim Bank to finance construction of part of the Bar-Boljare highway in the near future. Construction of the highway will be the main driver of growth in the Balkan country this year.

The loan is one of several extended by Chinese state-owned banks for Balkan infrastructure projects. Beijing has hiked its support for road and rail projects in the region after Cosco Pacific took over the management rights to part of Greece’s Piraeus port. Beijing appears keen to fund construction of new road and rail links through the region that will connect ports including Bar and Piraeus to major markets in Central and Southeast Europe.

The loan agreement for the Bar-Boljare highway segment was signed in November 2014. The following month, at the China-Central and Eastern Europe summit in Belgrade, several other deals were signed, mainly in the infrastructure and energy sectors. These included agreements on the €1.5bn Belgrade-Budapest high-speed line, which will be financed by soft loans from Exim Bank. There are plans to extend the line south to Macedonia and Greece in future, establishing a rapid connection from Pireaus through the Balkans to the EU member states of Central Europe.

Montenegro’s government has now sent all necessary documents to draw the Exim Bank loan for the construction of the first priority section of Bar-Boljare, from Smokovac to Matesevo, and expects to receive the sum soon, broadcaster RTCG reported, quoting the Montenegrin finance ministry.

The loan has 2% fixed interest, with a 20-year maturity and five-year grace period. The complete cost of the Smokovac-Matesevo section of the highway is €809mn, and the Montenegrin government is expected to provide the remaining €120mn from other sources.

Earlier this month, Podgorica paid €80.95mn in advance to China Road and Bridge Corporation (CRBC), for the construction of the Smokovac-Matesevo stretch and will pay another €80.95mn by the end of March. The total amount to be paid to CRBC by end-2015 is €206mn.

The 169-km Bar-Boljare road project is significant in comparison with the size of Montenegro's economy and is expected to boost its growth in 2015.

The European Commission forecasts that the country’s economy will grow by 3% this year up from an estimated 2% in 2014, with the main drivers being the launch of construction on Bar-Boljare motorway, and work on two large tourist resorts, Porto Novi and Lustica.

The International Monetary Fund (IMF) also expects growth accelerate to 4.5% in 2015, again with highway construction making a substantial contribution. However, in a February 4 statement, the IMF also raises concerns over the risks posed by the Bar-Boljare project, and warns that a “sustained period of fiscal discipline” will be needed.

“The Bar-Boljare highway project places a large burden on public finances and exacerbates debt and financing risks,” the IMF says, adding that, “the authorities should define contingency measures to address unforeseen fiscal shocks, with the first recourse being a delay or cut in highway spending.”