The Government of Montenegro exceeded the fiscal stability parameters prescribed by both domestic law and European rules in 2025. According to data from the Ministry of Finance (MoF), the budget deficit for 2025 amounted to 3,96 percent of gross domestic product (GDP), while public debt amounted to 63,5 percent of GDP, or 5,2 billion euros.
The Law on Budget and Fiscal Responsibility stipulates that the budget deficit must not exceed three percent of GDP, while public debt must not exceed 60 percent. This is also stipulated by the Maastricht criteria relating to the fiscal stability of European Union (EU) member states, which Montenegro should adhere to on its path to the EU.
The law obliges the Government to propose recovery measures to the Parliament within 60 days of determining the deviation if the budget deficit exceeds three percent of GDP. Also, if the public debt exceeds 60 percent of GDP, the Government is obliged to propose measures to reduce it.
"Although it was clear that the fiscal limits would be breached, the government consciously entered the zone of violation of the Law. A short-term increase in income without sustainable fiscal coverage produced an apparent effect of rising standards due to rising inflation, but now a period of adjustment is coming that citizens will feel through limiting income growth, a possible increase in tax burdens and rising prices," he warns for Center for Investigative Journalism of Montenegro (CIN-CG) Miloš Vuković, founder of Fidelity Consulting, who closely analyzes the economic and fiscal policy of the Government of Montenegro.
The government was obliged to present a recovery plan, and the absence of such a document already raises the question of compliance with legal obligations, explains Vuković.
The Ministry of Finance told CIN-CG that the fiscal consolidation plan is being implemented through the Fiscal Strategy, Macroeconomic and Fiscal Policy Guidelines, and the 2026 budget. They claim that a separate document is not needed, because the measures have already been defined and their implementation has begun.
From the department he leads Novica Vuković They point out to CIN-CG that fiscal consolidation measures on the revenue side are based on improving tax and customs administration, better collection, combating the shadow economy, expanding the tax base, and amending tax laws, including progressive taxation in certain areas. They also announce a reform of the VAT system, further harmonization of excise duties with EU rules, especially when it comes to tobacco products, as well as better collection through the rescheduling of tax debts and improving the regulatory framework.
"On the expenditure side, measures are aimed at rationalizing budget spending and reducing unproductive expenditures, while preserving capital investments," the Ministry of Finance told CIN-CG.
The Ministry of Finance guarantees citizens that the measures will be implemented in a way that ensures the long-term stability of public finances and the security of social systems.
Still no Fiscal Council that could react
The Law on Budget and Fiscal Responsibility obliges the Government to obtain the opinion of the Fiscal Council within 15 days in the event of an excessive budget deficit or debt. However, Montenegro does not yet have a Fiscal Council.
Although the European Commission (EC) has been warning for years that Montenegro must form a Fiscal Council, that body has not been established since 2021, when the Minister of Finance was the current Prime Minister. Milojko SpajicAlthough members were expected to be elected by the end of 2025, and then in March 2026, this has not yet happened.
In addition to the excessive budget deficit and public debt, Montenegro also violates two other key parameters of fiscal stability, according to the methodology applied in the EU: the inflation rate and the level of long-term interest rates at which the state borrows.
When EU member states have excessive budget deficits, mechanisms for enhanced surveillance are introduced by the EC, which adopts measures to reduce the deficit and public debt. Thus, countries enter the so-called Excessive Deficit Procedure (EDP) and are strictly monitored until the problems are remedied.
"After joining the EU, Montenegro could very easily become the subject of increased fiscal surveillance and enter the excessive deficit procedure," Vuković believes.
According to EC data, ten EU countries are currently in this procedure (Austria, Belgium, Finland, France, Hungary, Italy, Malta, Poland, Romania and Slovakia), but almost none of these countries simultaneously violate the four main criteria for economic stability like Montenegro (the level of public debt, budget deficit, inflation rate and long-term interest rates at which the state borrows).
"The excessive deficit control regime reduces the government's discretion to make financial decisions on its own and forces it to cooperate with the supranational level in Brussels in defining the level and purpose of future borrowing," he tells CIN-CG. Gordana Đurović, former Minister of Foreign Economic Relations and European Integration and professor at the Faculty of Economics at the University of Montenegro (UCG).
“Croatia entered the EU with long-standing negative GDP growth rates, a budget deficit and high public debt (but with a built-up network of motorways). Therefore, immediately after joining, it fell under the excessive budget deficit control regime. However, this process has yielded results, and Croatia has gradually consolidated its public finances,” says Đurović.
When asked by CIN-CG about possible consequences, the Ministry of Finance did not directly address the risk of the excessive deficit procedure.
"The government is committed to reducing the deficit to below 3 percent of GDP by 2028, in accordance with the Maastricht criteria, while simultaneously reducing public debt," the Ministry of Finance said.
Public debt could reach 75 percent of GDP under new methodology
If Montenegro were to measure its budget deficit and public debt according to the official EU methodology, the figures would be even higher. The deficit would amount to around 4,2 percent of GDP, as the calculation would also include the deficits of all municipalities in Montenegro, which amounted to around 0,3 percent of GDP in 2025, according to a report by the Central Bank of Montenegro (CBCG) from February 2026, experts explain.
Montenegro still calculates fiscal parameters according to the old ESA 1995 methodology, while the EU uses ESA 2010. The transition to the new methodology is planned for 2027, which will further worsen fiscal indicators, experts say.
"When public debt is calculated according to the ESA 2010 methodology, the total amount will also include the debts of state-owned enterprises. My estimate is that, after switching to the new methodology, Montenegro's public debt could reach approximately 75 percent of GDP, which would represent a serious fiscal challenge for a country that wants to join the EU. This level of public debt-to-GDP ratio would be by far the highest in the region," explains Vuković.
The Ministry of Finance confirmed to CIN-CG that, due to differences in methodology, a change in the level of public debt can be expected after the transition to ESA 2010, but did not say how much that change might be. They stated that a more precise estimate will be possible after verification by Eurostat later this year.
The transition from the ESA 1995 methodology to the ESA 2010 methodology usually leads to an increase in the level of both the deficit and public debt, due to the wider coverage of the public sector, explains Vuković.
"Croatia's experience shows that such a change in methodology can significantly worsen official fiscal indicators," warns the expert.
The Government of Montenegro has committed to publishing public debt according to the new methodology in the second quarter of 2026, which means they must publish it by June 30, explains Vuković.
IMF: Introduce fiscal consolidation, current budget does not guarantee stability
In its November 2025 report for Montenegro, the International Monetary Fund (IMF) warns of the growth of public debt and projects its further increase in relation to GDP.
"Accordingly, it is necessary to align the fiscal strategy with the cyclical position of the economy, as well as with the requirements of the Fiscal Responsibility Law," the report states.
Maintaining a balanced current budget, as the Government of Montenegro does, does not necessarily guarantee long-term fiscal sustainability, the IMF warns.
"Therefore, IMF staff advocates for forward-looking fiscal consolidation with the aim of reducing public debt below the 60 percent threshold."
"Montenegro's problem is that the golden budget rule, according to which current budget revenues should cover current expenditures, has never been consistently followed, while borrowing is used exclusively to finance investments; due to such a practice, funds obtained through borrowing were often redirected to public spending, which is why the capital budget has continuously suffered and been pushed into the background," explains Đurović.
"In practice, there was a systematic redirection of part of the funds intended for investments towards current public spending, with a particularly pronounced scope for additional employment in public administration, often unproductive. Such a fiscal policy generates negative consequences in the long term, because the lack of funds for development is compensated for by new borrowing, which ultimately leads to a continuous increase in public debt," says Đurović.
The measures proposed by the IMF could be the start of that recovery. To achieve a balanced primary budget, the IMF proposes spending cuts - limiting public sector wage growth to no more than the inflation rate - which would generate estimated savings of 0,9 percent of GDP by 2028 compared to the baseline scenario.
On the revenue side, according to IMF proposals, the long-delayed concession for Montenegro Airports should be completed and all extraordinary state revenues should be directed into savings, which could contribute up to 1,1 percent to GDP.
Additional results could be achieved, according to the IMF, by reducing unproductive tax expenditures, continuing tax system reforms, in line with current IMF recommendations, as well as introducing regulation in the fuel market, which was planned for 2025.
Are we facing austerity measures?
Despite the budget deficit and public debt above the legal threshold, the Ministry of Finance claims to CIN-CG that "the country's current fiscal position is stable and under control" and that public debt is gradually stabilizing through responsible management.
"The government is already implementing certain fiscal adjustment measures to address the budgetary consequences of the 'Europe Now 2' program, but without clearly and openly presenting these moves as fiscal adjustment. The increase in VAT in tourism, the growth of excise duties and the expected pressures on the price of electricity indicate that inflationary pressures could further strengthen. In the coming period, additional levies can be expected, both for the economy and for citizens. We are already seeing a wave of increases in utility prices across the country," warns Vuković.
"One of the ways in which the fiscal picture is temporarily alleviated is by postponing or insufficiently servicing obligations, including obligations to the health and social system, which ultimately indirectly affects citizens," warns Vuković.
Đurović also agrees that Montenegro must soon introduce austerity measures, which have been avoided for years.
"Reducing salaries is always the last and very unpopular option for fiscal consolidation. Savings measures in this area should primarily relate to optimizing public administration and rationalizing the number of jobs, freezing salary growth, and freezing the hiring of new employees in public administration."
Đurović also reminds that it is now possible to get rid of some employees in public administration, through the processes of preparing new systematizations, or re-systematizations, applying the institute of personnel disposal and management in the internal labor market, which can also lead to termination of employment, but these mechanisms are rarely used in Montenegro.
The economist explains the importance of dialogue on economic governance with the EU and adherence to recommendations.
"This was particularly evident a few years later, during the COVID crisis and later anti-inflation packages. Both times, the Commission generously helped member states, and took out additional loans on their behalf on the financial market, but the countries had to develop national reform plans and strictly adhere to them, because the measures were monetized," Đurović points out.
In the event that a country does not comply with the EC's guidelines for deficit and debt reduction, as was the case with Greece, the EC may propose some unpopular measures, from abolishing the thirteenth salary in public companies to privatizing part of state property due to excessive debts, which particularly affected the energy and tourism sectors, explains Đurović.
Inflation mainly due to food, and in the EU due to the energy crisis
The annual inflation rate in 2025 in Montenegro was four percent, and the prices of food and non-alcoholic beverages, housing costs, water and health supplies had the greatest impact, MONSTAT told CIN-CG.
According to the European Central Bank (ECB), inflation in EU countries should be two percent.
"It is not disputed that individual EU member states deviate from the targeted inflation parameters, but it is crucial to understand the structure of inflation. In Montenegro, it is predominantly a consequence of rising food prices, which affects citizens' living standards significantly more than inflation in parts of the EU, which was primarily driven by energy shocks," explains Vuković.
Vuković warns that the inevitable increase in energy prices will lead to even higher prices for all other necessities.
"That is precisely why the government is avoiding increasing the price of electricity, because it would produce an additional wave of price increases in almost all segments of consumption," explains Vuković.
Đurović warns that the uncontrolled rise in energy prices due to the global crisis caused by the war in the Middle East could push the economy into high inflation. Eurostat's flash projection for the eurozone countries for March raises annual inflation to 2,5 percent, in which energy prices jumped by almost five percent. In some EU countries, inflation in March exceeded 3,5 percent, and GDP growth projections fell by more than 0,6 percent. We can also recognize these trends in Montenegro.
"The first signals are already here: dairies are being forced to adjust prices due to more expensive transportation, and that is just the tip of the iceberg. The increase in prices on the supply side due to the increase in energy prices is spilling over into production and supply, which affects the increase in prices, while the effect stops at the reduction in purchasing power and the decline in living standards. As a country that imports almost everything and whose transport relies exclusively on oil derivatives, we are in an unenviable position. If the trend of rising prices continues, additional measures will have to be introduced," Đurović points out.
He warns that this will also affect the tourism sector, as the main economic sector.
"Transportation costs are a vital part of a tourist package. We need to take seriously the messages from the region, such as those from Croatia, where there is a justified fear that high prices could make us unaffordable for the average tourist," says Đurović.
"In the last two years, the main pressures on price increases in Montenegro have largely come from import factors, especially the prices of energy and goods that depend on the international market. In 2028, Montenegro will have inflation stabilization and a projected rate of around two percent. The latest report by the European Commission, as well as projections from all relevant international institutions, such as the World Bank and the International Monetary Fund, indicate declining inflation in the coming period," the Ministry of Finance told CIN-CG, without referring to the current energy crisis, which has led a large number of countries around the world to introduce special measures.
Poor country credit rating
Montenegro has been borrowing at an average rate of around five percent in recent years, which is significantly more expensive than borrowing in stable EU economies and indicates high risk, CIN-CG interlocutors explain.
Montenegro issued a seven-year Eurobond in March 2025 for 850 million euros at an interest rate of 4,86 percent, mainly to refinance old debts. A year earlier, it borrowed 750 million dollars at an interest rate of 7,2 percent. Through a “hedging” arrangement, the interest rate in euros was reduced to about 5,9 percent.
"The level of long-term interest rates, as an indicator of the perception of the credit risk of investing in a particular country, can be observed through the interest rates at which Eurobond issues are realized on the international financial market, with which Montenegro has had extensive experience over the past fifteen years. These rates reflect the complex interaction of multiple factors, including the country's credit rating, estimated investment risk, level of public debt, macroeconomic stability, as well as market conditions of supply and demand," Đurović explains to CIN-CG.
In the case of Montenegro, the relatively low credit rating (which is still a non-investment rating, but with improved prospects) and the elevated level of public debt negatively affect the perception of investment risk, which is reflected in higher interest rates on government bond issues, i.e. a higher cost of borrowing on the international capital market.
Standard & Poor's (S&P), an international agency that measures the creditworthiness and fiscal stability of all countries based on multiple parameters, has rated Montenegro with a “B+” rating since August 2024, which is the worst rating in the Western Balkans, which Montenegro shares only with one other country - Bosnia and Herzegovina (BiH). Until 2024, Montenegro had a B rating, and for some time it was even below BiH. This rating indicates “speculative creditworthiness and high credit risk,” according to S&P.
By comparison, the three countries with the worst credit ratings in the EU, Greece, Romania and Hungary, have a rating of “BBB-”, which is four grades better than Montenegro. Serbia, which is the best among the Western Balkan countries, is also in this range. North Macedonia and Albania have a rating of “BB-”, which is one grade higher than Montenegro. Most European Union countries have a rating in the A category, which implies high economic stability and significantly more favorable borrowing conditions.
Montenegro could join the EU at a more unfavorable financial time
After the financial crises of 2009 and 2012, the EU developed stricter mechanisms for controlling public finances, especially the budget deficit and public debt, on which access to European funds depends. However, the COVID-19 pandemic brought about a turnaround. At that time, countries were allowed to borrow more, and the EU entered the financial market on a larger scale for the first time to help the recovery of economies.
Through the Next Generation EU program, the Union, in addition to a seven-year budget (2021-2027) of around 1.200 billion euros, has secured an additional 800 billion through joint borrowing. The funds were allocated to member states as a combination of grants and soft loans, with deferred repayment until 2028.
Thanks to its high credit rating and stable public finances, the EU borrows at significantly lower interest rates than individual countries. This has allowed member states, such as Croatia, to obtain significant funds on very favorable terms, without having to borrow additional money on the market.
However, the next multi-year EU budget period (2028-2034) will be burdened with the repayment of this debt from the period of additional EU borrowing on the financial market, which was for the needs of the economic recovery of member states in the post-pandemic period and new challenges, which will reduce the available funds for the funds. Part of the budget will be redirected to repaying loans. Another important change is the increase in funds for new priorities, such as joint European defense and the military industry, which is logical, in conditions of increased geopolitical risks, wars and energy crises, Đurović points out.
"The attractiveness of EU accession, which was felt by the new member states from Eastern Europe, including Croatia, as beneficiaries of EU budget funds, has relatively decreased, due to all the new risks and costs, due to wars and energy crises," explains Đurović.
This means that Montenegro, which is struggling to complete negotiations and join the EU this year, finds itself facing a different, less attractive financial framework, but at the same time increased motives for integration - not only economic prosperity, but also European values, peace and security in Europe, and in every member state, Đurović says.
Finally, says Đurović, it is important to point out that, although financial support for the economic convergence of new member states will be relatively smaller than it was in previous waves of enlargement, it will still be very significant, because infrastructure deficits and regional disproportions are very pronounced in Montenegro.
Problems with statistics
The latest EC report for Montenegro states that the country should make significant progress in the area of macroeconomic statistics and the implementation of ESA 2010, both in terms of quality and data coverage.
“Regular production of public finance statistics has not yet been established, and the excessive deficit procedure (EDP) tables submitted to Eurostat are incomplete,” the report on progress under Chapter 18 states.
Chapter 18 concerns the state's ability to produce accurate and comparable statistical data in accordance with EU standards.
MONTSTAT told CIN-CG that the ESA 2010 methodology is currently being tested through the IPA project, but that the data is not yet final and cannot be published before verification by Eurostat.
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