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news 28 Jun 16

Montenegro May Revise Budget to Cover Spending Gap

Montenegro will have to revise its budget for 2016 in order to cover a growing chasm in the public finances.

Dusica Tomovic
BIRN
Podgorica
Photo: Pixabay.

Due to a big budget deficit, the Montenegrin government is preparing to propose a budget rebalance, which must be adopted by the end of July to avoid major problems in public finances.

The Finance Ministry says about 60 million euros is missing only to pay for the debts of the State Health Fund, public-sector wages and benefits for mothers with three children, the so-called Mother's Law.

Rasko Konjevic, the Finance Minister who comes from the ranks of the opposition, said a revised budget was "inevitable" and that the demand for a budget revision should be put on parliament's agenda as soon as possible.

"The planned budget for 2016 it will not be enough for the government to get through the year," he told local TV Vijesti.

With a budget of about 2 billion euros set for 2016, the government already plans to borrow 700 million euros more under commercial bank loans and bonds.

To repay old debts, Montenegro needs almost 400 million euros, while about 250 million must be set aside for construction of the Bar-Boljare highway, which is being financed by loans from Chinese banks.

According to government data announced last week, the public debt of Montenegro at the end of 2015 reached 2.36 billion euros, which is almost 66 per cent of Gross Domestic Product, GPD. The debt has risen by almost 500 million euros, or 25 per cent, in only two years.

A cabinet press release quoted Prime Minister Milo Djukanovic as saying that the level of debt was not worrying "in the context of the over-indebtedness of many countries in Europe".

However, the government said that it was preparing a recovery plan in order to eliminate the risk of instability in public finances.

"The real issue was whether the debt was being used for current spending, which has never been dominant, or for capital spending," Djukanovic said, adding that he would "personally deal with the budget for 2017" and make sure that Montenegro did not borrow a single cent to cover current spending.

The size of the overall debt, which includes external debt and money owed to domestic creditors, has long been a source of contention. The opposition has accused the government of hiding the real figure.

Zarko Rakcevic, a former Deputy Prime Minister and now leader of the opposition URA movement, said intensive consumer borrowing was the main factor responsible. He claimed the Montenegro would have to borrow 1.3 billion euros in the next two years.

"In the past ten years alone, since Montenegro gained independence, the public debt has increased fourfold," Rakcevic warned.

Last year, the International Monetary Fund, IMF, predicted that Montenegro's state debt could rise to 75 per cent of GDP in the next four years.

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