Public debt structure, in million euros

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1 PUBLIC DEBT 06

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3 The issue of public debt is defined under the Law on Budget and Fiscal Responsibility 42 of The Law defines the public debt as debt of the Central Government Level and Local Government Level, precisely of the General Government Level. 43 According to the Ministry of Finance data, gross public debt of Montenegro amounted to 2,418.8 million euros or 67.3% of GDP at end-march 2016, recording an increase of 16.8% compared to end Public debt structure reveals that the government debt accounted for 2,276.7 million euros (94.1%) 44, while the local self-government debt accounted for million euros (5.9%). When we include deposits of the Ministry of Finance along with 38,477 ounces of gold, the net public debt of Montenegro amounts to 2,361.6 million euros, or 65.7% of the estimated GDP. Compared to end-2014, net public debt increased by 16.8%. Table 6.1 Public debt structure, in million euros 2014 Domestic debt External debt 1, ,956.4 Government debt 1, ,276.7 Local self-government debt Total public debt (gross) 2, , % of GDP 67.3% of GDP Deposits of Ministry of Finance, including 38,477 ounces of gold Total public debt (net) 2, , % of GDP 65.7% of GDP Public Debt At end-, the level of public debt exceeded the 60% of GDP ceiling. In line with the Law on Budget and Fiscal Responsibility, the Government of Montenegro shall prepare a five-year rehabilitation plan with a view to removing the risk of public finances instability. 42 OGM No. 20/14 and 56/ Central Government Level includes the State authorities and State administration authorities, legal entities and business organisations predominantly providing services of public interest which are controlled and mostly financed by the State. Local Government Level includes the municipal authorities, legal entities and business organisation predominantly providing services of local interest and which are controlled and mostly financed by the municipalities. 44 The amount of government debt includes a part of the local self-government units` debt in the amount of 35.3 million euros for which the Ministry of Finance is the direct borrower (the Ministry of Finance concluded agreements with foreign creditors, and sub-credit agreements with municipalities). 101

4 Central Bank of Montenegro CBCG Macroeconomic Report The fact that public debt is expected to increase in the upcoming period, raises concerns regarding the growth dynamics as well as the total amount of public debt, especially in the years of major infrastructure projects implementation, primarily the highway construction Government debt At end-, gross government debt amounted to 2,276.7 million euros or 63.3% of GDP. In relation to end-2014, government debt increased million euros or 17.2%. In, the government debt growth was mostly induced by the Eurobond issues, as well as the withdrawal of a part of loan for the construction of the highway section from the Chinese Exim Bank. In the total amount of gross government debt, 1,956.4 million euros or 85.9% referred to external debt, while the remaining million euros or 4.1% referred to domestic debt. When we include deposits of the Ministry of Finance along with 38,477 ounces of gold, the net government debt of Montenegro amounts to 2,219.4 million euros or 61.7% of the estimated GDP. Compared to end-2014, net government debt increased by 17.2%. Table 6.2 Government debt structure, in million euros December 2014 March June September December Domestic debt External debt 1, , , , ,956.4 Government debt (gross) 1, , , , ,276.7 Deposits of Ministry of Finance, including ounces of gold , Government debt (net) 1, , , , , Domestic debt At end-, domestic debt amounted to million euros. In relation to end-2014, it declined by 60.9 million euros or 16%. This decline was primarily a result of a decline in debt arising from loans of commercial banks by 34.8 million euros, as well as a decline in liabilities arising from frozen foreign currency deposits (12.5 million euros) and government bonds (10.3 million euros). 102

5 Table 6.3 Domestic debt structure Domestic debt balance and structure Debt balance as at 31 December 2014 Debt balance as at 31 December Change Change Share in domestic debt (2-1) 4 (2/1) 5 million euros % % Foreign currency deposits Restitution Loans with commercial banks Loans with nonfinancial institutions Accrued pensions T-bills Labour Fund bonds Government bonds Legal persons and companies* TOTAL * Legal entities and business organisations predominantly providing services of public interest which are controlled and mostly financed by the State External debt External debt continued its longstanding growth, amounting to 1.956,4 million euros or 54.4% of GDP at end-. In relation to end-2014, the external debt increased by million euros or 25.3%. The increase in relation to end-2014 was mostly induced by the 500 million euro worth Eurobond issue, as well as the withdrawal of million euros from the Chinese Exim Bank for the construction of the Bar - Boljari highway section. Public Debt In addition, the following also contributed to the external debt increase in : Withdrawal of KfW funds in the amount of million euros (for the projects: Water-supply and Waste Water Discharge, phases III, IV, and V, and Energy Efficiency Program in Public Buildings ), Withdrawal of the EIB funds in the amount of 7.6 million euros for the project Road and Bypass Rehabilitation, Withdrawal of IBRD funds in the amount of 7.57 million euros (for the projects Lamp, Midas, Higher education and research for innovation and competitiveness and Industrial waste management and clean up and Energy efficiency in Montenegro - additional financing (MEEP AF); Withdrawal of funds from the loan of the Council of Europe Development Bank - for the project Construction and Reconstruction of Pre-school institutions in the amount of 3.75 million euro. On the other hand, the external debt was reduced by repaying matured liabilities to non-residents (principal) in the amount of 320 million euros, where million euros referred to debt repayment arising from the Eurobond issues. The structure of external debt shows that the highest share was of liabilities arising from issued Eurobonds (49%), while the International Bank for Reconstruction and Development stands as the largest individual creditor with an 11.3% share in external debt. 103

6 Central Bank of Montenegro CBCG Macroeconomic Report Table 6.4 Creditor External debt structure as at 31 December Debt balance External debt GDP Share in external debt million euros % Share in government debt International Bank for Reconstruction and Development (IBRD) 220,9 6.1% 11,3% 9.7% Member countries of the Paris Club of creditors 98,5 2.7% 5.0% 4.3% International Development Association (IDA) 60,0 1.7% % European Investment Bank (EIB) 1 105,4 2.9% 5.4% 4.6% EBRD 12,8 0.4% 0.7% 0.6% Council of Europe Development Bank 12,8 0.4% 0.7% 0.6% European Commission 3,9 0.1% 0.2% 0.2% Kreditanstalt für Wiederaufbau Germany (KFW) 2 33, % 1.5% Loan from Hungary 8,0 0.2% 0.4% 0.4% Loan from Poland 7,6 0.2% 0.4% 0.3% Loan from France - Natixis 3 6,4 0.2% 0.3% 0.3% EUROFIMA - debt of AD Željeznica Crne Gore 15,7 0.4% 0.8% 0.7% Czech EXIM - debt of AD Željeznica Crne Gore 9,5 0.3% 0.5% 0.4% Steiermarkische Bank und Sparkassen AG 4 12,1 0.3% 0.6% 0.5% Erste Bank 12,0 0.3% 0.6% 0.5% Credit Suisse Bank 166,0 4.6% 8.5% 7.3% Chinese EXIM Bank 172,8 4.8% 8.8% 7.6% Loan from Spain for the construction of landfill 4,3 0.1% 0.2% 0.2% Loan from Austria 6,2 0.2% 0.3% 0.3% EUROBOND 957,8 26.6% 49.0% 42.1% Deutsche Bank 30,0 0.8% 1.5% 1.3% TOTAL 1.956, % 100.0% 85.9% 1 EIB loans amounting to 47 million euros in total servicing state enterprises ( Monteput, Airports of Montenegro and EPCG ) are not calculated in external debt, but are treated as guarantees. 2 Loans with KfW for the needs of water supplies are used by municipalities, but they are considered a part of external debt. 3 Merchandise loan - EPCG 4 Loan for financing the purchase of fire engines for the Ministry of Interior. It should be noted that there are granted credit line funds which have not been withdrawn. Total amount of available non-withdrawn funds amounted to million euros (where million euros refers to Exim Bank) Local self-government units debt The Ministry of Finance data show that, total consolidated debt of local self-government amounted to million euros at end-, which is 10.6 million euros or 6.3% more y-o-y. In the total amount of consolidated debt, million euros or 64.7% referred to the external debt, while the remaining 62.6 million euros or 35.3% referred to the domestic debt. 104

7 The growth of local self-government total debt in relation to end-2014 was induced mainly by a significant rise in domestic debt (39.2%) 45. On the other hand, local self-government external debt declined by 5.8%. Graph 6.1 Local self-government consolidated debt (by municipalities), end-, in million euros Observation of consolidated debt structure reveals that the municipality of Budva is the largest debtor with 60.6 million euros (34.2% of total consolidated debt). Other major debtors include the municipalities of Podgorica (12.9%) and Nikšić (11.4%), while the municipalities of Andrijevica, Petnjica and Gusinje were not indebted (Graph 6.1). Of the total amount of local self-government consolidated debt, million euros was already included in the external government debt on the basis of the agreement signed by the Ministry of Finance. Thus, at end-, the local self-government debt balance was million euros. In relation to end-2014, the local self-government debt increased by 10.4% Debt repayment Graph 6.2 Debt repayment in, in million euros Public Debt In, total debt repayment 46 amounted to million euros or 17.9% of the estimated GDP. The main share therein referred to the repayment of debt principal to residents and nonresidents in the amount of million euros and the repayment of interest arising from loan arrangements to residents and non-residents in the amount of 81.7 million euros. The repayment of liabilities from previous periods amounted to 18.9 million euros, where the main share referred to the repayment of debt arising from frozen foreign currency deposits (13.6 million euros). 45 Local self-government domestic debt increased mainly due to the conclusion of loan arrangements of local self-government units with domestic banks for the purpose of debt rescheduling. 46 Total debt repayment includes the repayment of debt arising from principal, interest repayment, as well as repayment of debt from previous years. 105