Montenegro distributed more than €33 million from its Equalisation Fund to less-developed municipalities in the first half of 2026, highlighting the continued dependence of many northern local governments on central fiscal transfers despite stronger national economic growth.
The payments went to 18 municipalities and represented about 60% of the roughly €55 million allocated to the fund for the full year, according to figures published by Action for Social Justice.
The 13 northern municipalities received around €21.2 million, accounting for nearly two-thirds of first-half transfers.
Bijelo Polje received about €4.4 million, the largest individual allocation cited, followed by Rožaje with more than €3.4 million, Berane with around €2.5 million and Pljevlja with approximately €2.4 million.
The fund is designed to reduce disparities in municipalities’ ability to finance public services from their own tax bases.
Its growing importance illustrates one of Montenegro’s most persistent economic problems: growth, investment and high-value property remain concentrated disproportionately in Podgorica and the coast while many northern municipalities struggle with weaker employment, smaller populations and lower locally generated revenue.
The result is a structural dependence on fiscal redistribution.
Municipalities with large tourism or property markets can collect substantial revenue from real-estate taxes, construction charges, local fees and business activity.
Those sources are far more limited in municipalities affected by depopulation and weaker private-sector investment.
The Equalisation Fund is intended to narrow that gap.
It allows less-developed municipalities to maintain services that their own-source revenues could not support at comparable levels.
The first-half distribution shows how important that mechanism has become.
Transfers of €33 million in six months are substantial relative to the operating budgets of many smaller municipalities.
For northern local authorities, the money can support wages, utilities, maintenance and other recurring public services.
But heavy dependence on transfers also creates a development problem.
Equalisation can stabilise municipal finances without necessarily creating new economic activity.
A town can balance its budget through transfers while continuing to lose population and private investment.
That distinction is important for Montenegro’s regional policy.
The fiscal system can compensate for weak local tax bases.
It cannot by itself create productive businesses, export activity or jobs.
Northern municipalities therefore remain dependent on national infrastructure and investment policy to change their underlying economic position.
The government is pursuing several large projects that could eventually alter that balance.
Extension of the motorway from Mateševo toward Andrijevica, railway rehabilitation, energy investment and tourism development could improve connectivity and create new opportunities outside the coast and Podgorica.
Pljevlja is also expected to receive significant investment related to the transition away from coal, including a proposed roughly €50 million heating and energy-efficiency programme being prepared with World Bank support.
Such investments may reduce long-term dependence on transfers if they attract businesses and expand employment.
But the effects will take years.
In the meantime, municipalities still need to finance basic services.
The concentration of Equalisation Fund payments in the north reflects that short-term reality.
Montenegro’s regional divide has several causes.
Geography raises infrastructure costs in mountainous areas.
Population decline reduces the tax base.
Younger workers often move to Podgorica or the coast, weakening the local labour market further.
Private investors then face a smaller customer base and more difficulty recruiting staff.
That creates a self-reinforcing cycle.
Lower investment leads to fewer jobs, which encourages migration, which further reduces local demand and revenue.
Equalisation transfers interrupt the fiscal consequences of that cycle but do not necessarily reverse it.
This makes the quality of local spending important.
If transfers are used almost entirely to cover current expenditure, municipal finances may stabilise without improving the economy.
If they provide room for municipalities to co-finance infrastructure, prepare investment projects or improve services that attract residents and companies, they can have a larger developmental impact.
Local administrative capacity therefore matters as much as the amount transferred.
That issue is becoming more important as Montenegro gains access to additional EU programmes.
Municipalities will soon be eligible for the European City Facility, which provides grants and technical assistance to prepare energy and climate investment concepts.
EU and IFI programmes are also available for water, wastewater, energy efficiency and local transport.
But municipalities need capable staff and credible project documentation to access them.
The smallest and weakest municipalities often have the least administrative capacity to prepare such projects.
That can produce a paradox in which the places with the greatest need are least able to absorb development funding.
Equalisation policy therefore increasingly intersects with capacity-building.
Transfers keep municipalities functioning.
Technical assistance is needed to help them create projects capable of reducing their long-term dependence on those transfers.
Pljevlja illustrates the challenge particularly clearly.
The municipality received about €2.4 million from the fund in the first half while facing an economic transition that could ultimately reshape its revenue base.
Coal mining and the Pljevlja thermal power plant support employment and local economic activity but face growing pressure from European decarbonisation policies.
Replacing that activity will require much larger investment than fiscal equalisation can provide.
The same principle applies elsewhere.
Bijelo Polje received roughly €4.4 million, more than any of the other municipalities cited.
That supports local finances but is not a substitute for private investment and employment growth.
Road and rail improvements could make the municipality more attractive for logistics, light industry or services, but those opportunities depend on execution of national infrastructure plans.
Rožaje and Berane face similar questions.
The government’s challenge is therefore to manage two policies simultaneously.
It must maintain enough redistribution to prevent unacceptable differences in public services between municipalities.
At the same time, it must avoid allowing transfers to become a permanent substitute for development.
That requires a shift from fiscal equalisation toward economic equalisation.
Infrastructure is part of that shift, but not sufficient.
Business incentives, workforce skills, digital connectivity and access to finance also matter.
Tourism outside the coast offers another opportunity, particularly in mountain municipalities.
But northern tourism remains much smaller in value than the coastal market and is more seasonal in many locations.
Higher-value accommodation and year-round activities would be needed to create a larger fiscal base.
Renewable energy could provide another source of investment.
Many northern municipalities have wind, hydro or solar potential, although major projects often generate limited local employment after construction.
Revenue-sharing and local taxation structures therefore influence how much of the value remains in the municipality.
EU accession could eventually strengthen regional-development funding.
Structural and cohesion mechanisms available to member states are far larger than the programmes Montenegro currently accesses as a candidate.
That could provide a significant opportunity for northern municipalities.
But absorption capacity will remain the limiting factor if project preparation and procurement systems are weak.
The first-half Equalisation Fund figures are therefore more than a snapshot of municipal finance.
They show where Montenegro’s economic geography remains most uneven.
Around €21.2 million of the €33 million distributed went to 13 northern municipalities, underlining how concentrated the fiscal need remains.
For now, the mechanism is functioning as intended: richer local tax bases are helping support weaker ones.
The longer-term measure of success will be different.
It will be whether future investment reduces the number of municipalities that need such large transfers simply to provide ordinary public services.
