Montenegro in ‘final phase’ of talks with Europe to cut China debt

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European state financial institution is ready to refinance $809 million of Montenegro’s debt to China, allowing the tiny Adriatic republic to make savings and cut interest rates, the country’s finance minister.

China sees the Western Balkans, which includes Albania, Bosnia, Kosovo, North Macedonia and Serbia, as well as Montenegro, as part of its Belt and Road initiative to expand Chinese influence.

Beijing has invested billions in the region, mainly through soft loans in infrastructure and energy, which could complicate EU expansion to the east.

The 2014 Chinese loan for the construction of a stretch of the highway from Adriatic coast of Montenegro – a NATO member and candidate to join the EU – to the border with Serbia, sent Montenegro’s debt soaring to a total of 103% of economic output and forced the Montenegrin government to ask for EU help.

At a session of the parliamentary committee for finances and budget, Finance Minister Milojko Spajic declined to identify the European financial institution due to a non disclosure agreement, but said discussions were “in the final phase”.

On June 11, Reuters reported Brussels had turned to Germany’s Reconstruction Credit Bank (KfW) and the French Development Agency (AFD) – both state-owned development banks – and Italian state lender CDP to spearhead the financial aid to Montenegro.

“Instead of a 2% (dollar) interest rate on the (Chinese) debt …, the rate will be 1% in euros, grace period of six years, … and repayment of 20 years,” Spajic told the committee.

Later on Thursday, the 81-seat parliament, in which the bickering ruling coalition has 41 deputies, adopted the 2021 budget, which sets the deficit at 3% of economic output.

The International Monetary Fund in April said that Montenegro’s economy is expected to grow by 9% this year, a recovery from a 15.2% contraction in 2020.