Montenegro ponders how to pay off massive infrastructure debt to China

Construction of the Mateševo-Smokovac section of Montenegro’s 41-kilometre long Bar-Boljare highway is set to be finished in January 2022. Now, how the country’s largest-ever infrastructure project, built and financed by Chinese interests, will be paid for remains in question. Not only has Montenegro’s largest-ever infrastructure project gone EUR 80m over budget plus interest, now totalling EUR 944m from the original quoted price tag of EUR 809m.

The length of the loan Montenegro took out from China’s Exim Bank in 2015 was for 20 years. Given that it is denominated in USD, it entails a significant currency risk. While the Montenegrin government was able to pay a first installment of EUR 29m over the summer, another payment is due after the first of the year. If Podgorica were to default on the loan, the country could lose some of its valuable companies or territories to China, say observers, who believe the Chinese are highly interested in acquiring the Port of Bar, Montenegro’s main sea port.

While Chinese Ambassador Liu Yin denies that China has geopolitical ambitions in Montenegro, China is a large lender, contractor and exporter in the country.

While the terms of the loan allegedly do not give China the right to seize territory or business interests in Montenegro in case of a loan default, earlier this year Podgorica pleaded for help from Brussels to help it get out from under the massive Chinese loan, which Beijing could use as leverage against it. While in March this year Montenegro’s Deputy Prime Minister, Dritan Abazovic, appealed to EU MEPs in hopes that the nearly EUR 1bn loan could be refinanced by a European bank, a European Commission spokesperson said the European Union only pledged to help the country find a solution, not to repay the loan.

Source: The GeoPost