China is ready to negotiate with Montenegro on an extension of the grace period of a loan granted for the construction of the first priority section of the Bar-Boljare highway, Chinese President Xi Jinping said on May 26 at the meeting. a telephone conversation with his Montenegrin counterpart Milo Djukanovic.

Montenegro previously asked for EU help to repay the loan Chinese bank Exim, as coronacrisis put government finances under pressure.

Speaking on the phone with Djukanovic, Xi said that “Chinese state organs attach great importance to the completion of the project, the line of the contract extending the period of availability of funds until the end of 2022, which is a firm guarantee. for the continued cooperation and the willingness of the two countries to be in contact regarding the grace period, ”said a statement from the Montenegrin Presidency.

The statement comes as the government of Montenegro tries to find a cheaper loan to replace that of Chinese bank Exim for the construction of the Smokovac-Matesevo section of the highway.

In March, the Montenegrin government said it had asked the EU for help in repaying the loan, but had received mixed messages and it is not clear whether assistance will be provided. European Commission spokeswoman Ana Pisonero initially said the EU did not repay debts to third countries, but later Enlargement Commissioner Oliver Varhelyi said the EU was exploring options to help Podgorica.

Meanwhile, the Montenegrin government is also in talks with Exim Bank on rescheduling the repayment of a down payment due this summer.

In 2018, Montenegro was on the list of eight countries at increasing risk of debt distress after taking out Chinese loans under the One Belt, One Road (OBOR) initiative, according to a study by the think tank based in Washington, the Center for Global. Development.

The enormous cost of the motorway – considered the most expensive road per kilometer in Europe due to Montenegro’s mountainous terrain – in relation to the country’s small economy has raised alarm bells among international financial institutions (IFIs) and rating agencies.

The previous government tightened fiscal discipline in an attempt to prevent a rise in public debt, with Exim Bank as the main creditor. However, he relaxed the measures in early 2020, only to come under intense pressure with the onset of the coronavirus pandemic (COVID-19). Its economy is among the most affected in emerging Europe by the pandemic due to the collapse of its tourism sector, which typically contributes 25% of GDP.

According to the latest figures from the Central Bank of Montenegro, the country’s public debt reached 105% of GDP in 2020, while the budget deficit was equal to 10.1% of GDP.

Although the government of Podgorica actively manages public debt, its commitments remained high in 2020 due to increasing costs related to the coronavirus pandemic (COVID-19) and its economic consequences.

“These indicators are a sign of a high risk which will be very difficult to manage in the period to come. A significant economic recovery cannot be expected without stimulating the generation of spending, especially investment [spending]The central bank warned on May 26.