Montenegro plans to introduce a more binding system for controlling public debt, state guarantees and capital expenditure from 1 January 2027, shifting fiscal policy away from annual budget management towards a four-year framework monitored by an expanded Fiscal Council.
Under the proposed Law on the Budget and Fiscal Responsibility, a public-debt ratio above 60 per cent of gross domestic product would automatically require the government to prepare a fiscal-convergence plan. The document would set annual targets, identify measures for reducing debt and establish a deadline for returning the public finances to compliance.
The reform retains the Maastricht-style ceilings of 3 per cent of GDP for the general-government deficit and 60 per cent for public debt, but attempts to make breaches more consequential. Previous fiscal limits provided a reference point for policy without consistently forcing a transparent adjustment programme when government borrowing moved beyond them.
That distinction matters as Montenegro enters another infrastructure-intensive period. The government wants to finance roads, energy networks, municipal services and EU-related investment while managing a debt stock that stood at €5.13bn, or 59.9 per cent of GDP, at the end of March 2026. The ratio is marginally below the proposed ceiling, leaving little room for weaker growth, cost overruns or additional borrowing without activating the corrective mechanism.
A debt breach would trigger annual reduction targets
If the debt ratio exceeds 60 per cent, the government’s Fiscal Strategy would have to include a detailed reduction plan covering the measures to be taken, their estimated effects on the deficit and debt, and the period required to restore compliance.
Should public debt already be above the threshold when the legislation begins to apply, the government would have to incorporate a convergence programme into the next Fiscal Strategy. Until that document is adopted, it would be required to take measures preventing any further increase in the debt ratio.
This structure is designed to replace general commitments to fiscal consolidation with measurable annual obligations. Its credibility will depend on whether the plan contains binding expenditure and revenue decisions rather than relying mainly on projected economic growth to lower the debt-to-GDP ratio.
Montenegro’s nominal GDP can expand through real growth and inflation, mechanically reducing the debt ratio even when the absolute stock remains high. Investors and rating agencies will therefore focus on the primary budget balance, interest expenditure, refinancing requirements and the proportion of new debt used for productive investment.
The rules would permit temporary departures during a severe economic disruption, natural disaster, epidemic, war, national-security threat, financial-sector intervention or another exceptional event with a significant fiscal impact.
An exemption would normally last no more than one fiscal year, although an extension would be possible. Higher defence expenditure undertaken in accordance with international obligations would receive separate treatment, with the scale and duration of the deviation specified in the Fiscal Strategy.
These escape clauses provide necessary flexibility, but their definition will determine whether they remain exceptional. A broad interpretation could allow recurring spending pressures to be treated as extraordinary, weakening the corrective mechanism.
Spending growth will be tied to a four-year strategy
The Fiscal Strategy would cover four years and include projections for revenue, expenditure, the budget balance and public debt, together with a path for net expenditure growth.
The government would use this framework to determine medium-term spending ceilings for ministries and other budget users. This should make it more difficult to introduce permanent measures—such as public-sector wage increases, tax reductions or new transfers—without showing their effects beyond the next budget year.
If the Fiscal Strategy has not been adopted or the net-expenditure path has not been established, expenditure limits could not grow faster than the projected nominal rate of GDP growth. The restriction would not apply in the same way where an economic contraction is expected.
Net expenditure would exclude interest payments, spending financed by European Union funds and the associated national co-financing, cyclical unemployment expenditure and measures classified as temporary or one-off.
Excluding interest costs prevents changes in market rates from forcing immediate cuts elsewhere in the budget. Removing EU-funded expenditure is also intended to preserve Montenegro’s ability to absorb accession and development funds. The treatment of national co-financing is particularly important because otherwise the fiscal rules could discourage the government from participating in economically valuable EU programmes.
The principal risk lies in the classification of temporary measures. Governments can weaken an expenditure rule by repeatedly describing politically important programmes as one-off. Effective monitoring will therefore require consistent definitions and independent scrutiny.
The Fiscal Council gains authority over forecasts and hidden liabilities
The proposed legislation would substantially expand the role of Montenegro’s Fiscal Council. It would assess the credibility of the government’s economic and fiscal projections, annual budgets, supplementary budgets, Fiscal Strategy, final accounts and debt-management strategy.
Its remit would extend beyond recorded public debt to risks arising from demographic ageing, pensions, healthcare, concessions, public-private partnerships, municipalities and companies controlled by the state or local authorities.
This broader coverage addresses one of the central weaknesses in conventional fiscal accounting. A government can remain within formal borrowing limits while accumulating contingent liabilities through guarantees, loss-making public companies, infrastructure concessions or contracts that create future payment obligations.
Where the government, Ministry of Finance or another public authority rejects a recommendation from the Fiscal Council, it would have to submit a written explanation to parliament and publish it within 30 working days.
State institutions, municipalities and majority publicly owned companies would be required to provide requested information within 15 working days. The period would fall to eight days where the council needs the data to complete an opinion subject to a statutory deadline.
The council would have three professional members appointed by parliament. Candidates would be proposed respectively by parliament’s Economy Committee, the president and the government. Members would serve six-year terms, renewable once, and could not belong to political parties.
The three-way nomination system may broaden institutional representation, but formal design will not guarantee independence. The council’s influence will depend on the expertise of its members, access to complete information, adequate funding and its willingness to challenge official assumptions before fiscal decisions become irreversible.
State guarantees face a 15 per cent ceiling and a risk charge
Outstanding state guarantees would be capped at 15 per cent of GDP and could be issued only to finance capital projects.
Recipients of guarantees and on-lent state borrowing would pay the budget a risk charge equal to 1 per cent of the guarantee or loan value, due within 30 days of signing the agreement.
The fee introduces an explicit price for transferring credit risk to taxpayers. It should discourage public companies and municipalities from treating a sovereign guarantee as costless support, although a uniform 1 per cent charge does not distinguish between financially strong and weak borrowers.
Before approving a guarantee, the Ministry of Finance would assess the borrower’s repayment capacity, the fiscal exposure and the quality of the available collateral. Long-term borrowing by municipalities and majority publicly owned companies would require prior government consent.
Public companies would also report each loan drawdown and provide regular data on outstanding debt and repayments. These provisions should give the ministry earlier warning of liquidity problems that could eventually migrate onto the state balance sheet.
The guarantee ceiling may constrain financing for large energy, transport and municipal projects, especially if several schemes require sovereign backing at the same time. It could also encourage stronger public companies to borrow on their own credit or pursue project-finance structures in which lenders rely more heavily on contracted revenues and project assets.
For weaker entities, the effect may be the opposite: projects that cannot attract finance without a state guarantee may be delayed until they demonstrate clearer economic returns or receive grant support.
Municipal borrowing and budgets come under central control
Municipalities would face tighter supervision over both borrowing and annual budgets. A local assembly could not adopt its budget if the Ministry of Finance had issued a negative opinion.
If the ministry failed to respond within 15 working days, its opinion would be deemed positive. The automatic-consent provision should prevent administrative silence from indefinitely blocking a municipality’s financial plan.
The rule strengthens central control over local fiscal risks, which is relevant because municipal arrears, guarantees and utility-company liabilities can eventually require national intervention. It may, however, create tension between fiscal discipline and local autonomy where the ministry challenges politically important spending programmes.
Municipalities with strong revenue bases and credible investment plans should benefit from clearer standards. Those dependent on central transfers, short-term refinancing or municipal-company borrowing will face greater pressure to restructure spending before approving new commitments.
A public register will expose capital-project risk
The Ministry of Finance would establish an electronic register covering public investments by the state, municipalities, public institutions and state- or municipally controlled companies. Public-private partnerships would also be included.
The register would have a publicly accessible component and would need to be updated at least once every three months.
A project could not enter the capital budget without first completing a formal appraisal. The assessment would examine economic justification, fiscal affordability, financial sustainability, implementation readiness and fiscal risks. Climate and environmental exposure would be considered where relevant.
The rules would apply regardless of whether financing came from the budget, a loan, an EU institution, a public company or a private partner. Emergency and national-security investments would be exempt.
This could be the reform’s most important investment provision. Montenegro has historically faced the risk that politically visible projects enter the budget before land acquisition, design, permits, procurement planning and financing have been resolved. Such projects can remain listed for years while absorbing limited administrative capacity and producing low execution rates.
A central register should make it easier to identify delays, repeated cost revisions and overlapping commitments. It would also give lenders and contractors greater visibility over project readiness.
The system will be valuable only if it records complete lifecycle costs rather than the amount allocated in a single year. A road, hospital or energy asset can appear affordable when judged against an initial appropriation while creating much larger obligations through later construction phases, maintenance, guarantees or availability payments.
Budget violations bring institutional and personal penalties
The draft strengthens enforcement against illegal or unauthorised spending. Where the budget inspectorate identifies misuse, the Ministry of Finance could restrict the responsible institution’s funding, prohibit access to budget reserves and prevent transfers between expenditure categories.
A budget user could also face a one-year prohibition on new hiring, variable salary payments and engagement through service contracts.
Officials who intentionally or through gross negligence cause financial damage would be personally liable. Proposed fines range from €600 to €6,000 for unlawful spending, assuming commitments beyond the approved budget or failing to submit financial reports. Other responsible persons would generally face penalties of between €500 and €2,000.
The personal-liability provisions are intended to change incentives within public administration. Their effectiveness will depend on whether inspections are applied consistently rather than selectively and whether responsibility can be traced through complex approval chains.
Fiscal risks and tax concessions become more visible
Future budget proposals would be accompanied by a fiscal-risk statement covering state guarantees, on-lent borrowing, public-private partnerships, concessions, litigation, municipal and public-company debt, arrears, natural disasters and climate risks.
The government would also quantify tax expenditure: revenue forgone through exemptions, deductions, relief and reduced tax rates. This would allow preferential tax treatment to be compared with direct budget spending.
A simplified “citizens’ budget” would have to be published within 15 working days of the budget proposal being submitted to parliament. The document would also be available in machine-readable form.
The law would begin applying in 2027, but implementation would be staggered. The medium-term budget framework, revised budget calendar and net-expenditure rule would start in 2028. Tax-expenditure estimates would first accompany the 2029 budget, while programme budgeting for municipalities would begin on 1 January 2030.
Calculation of the deficit and public debt under the EU’s ESA methodology would start when Montenegro joins the union. Until then, compliance would be assessed under the domestic cash-based methodology covering the state and municipalities.
The transition schedule gives institutions time to improve data and systems, but it also delays the most technically demanding reforms. Montenegro’s debt ratio is already close enough to 60 per cent of GDP that the convergence mechanism could become relevant almost immediately. The legislation’s credibility will therefore be established not by the formal ceiling, but by whether the first breach produces measurable adjustment, transparent project choices and fewer liabilities hidden outside the central budget.
