BRI NEWS Is Montenegro's highway a debt trap or road to success?


Is Montenegro's highway a debt trap or road to success?


04:21, October 05, 2018


Photo taken on Sept. 22, 2018 shows the construction site of the Moracica bridge of Montenegro's first highway, about 14 km north of the capital Podgorica. (Photo: Xinhua/Wang Huijuan)

PODGORICA, Oct. 4 (Xinhua) -- When news broke that construction of Montenegro's first highway would begin near his house, Vukasin Petrovic, a villager in Jelin Dub, about 14 km north of the capital Podgorica, was so excited that he joked he would jump off a planned bridge.

The dream of safe and fast travels was too distant to realize in this small and under-developed corner of the Balkans, until impressive piers, some as high as 160 meters, emerged on the horizon.

The highway is part of the project that cut through the country's undulating mountains.

Now, 69-year-old Petrovic often sits on a big, wooden chair in front of his house just to observe the progress of construction, and vows he would be one of the first to drive on the highway, once it's completed.

Initial suspicion towards the highway wasn't limited to Petrovic. When the Montenegrin government first floated the project, it was criticized domestically and internationally as "empty talk" and political marketing, said Vatroslav Belan, a government advisor.

"Now we are under a different kind of pressure from our citizens, to build the highway as soon as possible," Belan added.

The 41-km-long road under construction, supported with Chinese loans and engineering expertise under the Belt and Road Initiative, is the first phase of a 180-km-long highway, which will link the Adriatic port of Bar to landlocked Serbia. It is the biggest infrastructure in Montenegro, a terrain-challenged country that nevertheless has been drawing an increasing number of international tourists.


Despite its popularity and importance in Montenegro, the highway has drawn the ire of the Western media, which has dubbed the project a "debt trap," alleging that the Chinese-aided project would bankrupt the Balkan country.

A Reuters report said that the Chinese loan for the highway "sent Montenegro's debt soaring."

A widely-cited policy paper, by the Washington-based Center for Global Development, said "Montenegro's debt problem is enormous," quoting a study -- released in February 2017 -- by the World Bank that estimates the country's public debt "as a share of GDP (gross domestic product) will climb to 83 percent in 2018 in the absence of fiscal adjustment."

Yet, investigations and interviews by Xinhua found otherwise.

The terms of the Chinese loans -- 2-percent interest rate, 20-year repayment schedule and 6-year grace period -- are considered extremely favorable by international standards.

In reality, the Montenegro's central government debt at mid-year 2018 was 70.1 percent of GDP, according to a report by its Ministry of Finance.

But even the 83-percent number is on par with European averages.

Eurostat, the European Union (EU)'s statistical office, said that government debt in the first quarter of 2018 stood at 86.8 percent of the national GDP in the 19-member euro area and 81.5 percent in the 28-member EU.

An under-reported development by the Western media is that Montenegro's effective fiscal consolidation efforts have since been recognized by the World Bank and the International Monetary Fund (IMF).

"The Government launched an ambitious fiscal consolidation program in 2017," the World Bank observed in April 2018, adding that "after initial fiscal consolidation efforts, the outlook on the credit rating of B+ improved to stable. This has allowed easier access to capital markets for regular refinancing of liabilities."

Fiscal deficit is projected to be brought down to 3.2 percent in 2018, and will slowly reach a surplus by 2020, according to the World Bank.

The IMF said in a May 2018 report that "most of the fiscal measures have already been implemented, and the underlying fiscal position improved in 2017. If carried out in full, the strategy will considerably strengthen the fiscal position, generating a primary fiscal surplus of 4.5 percent of GDP by 2020, allowing government debt to fall to 53 percent of GDP by 2020."

On top of that, Veselin Vukotic, a leading Montenegrin economist who is now rector of the private University of Donja Gorica, said "tying the health of the economy only to one quantitative indicator -- public debt of GDP is an absolute bureaucratic approach."

It is important to look at "the way these borrowed funds are invested," he said, and in this case the money is well-spent on long-term infrastructure building.


Construction of the highway has already given the small country a shot in the arm, with the IMF saying "after expanding 2.9 percent in 2016, the economy grew 4.4 percent in 2017, driven by highway construction and a strong tourism season."

"Strong economic growth should continue in 2018, notwithstanding fiscal adjustment ... With highway spending to remain near 2017 levels, private investment -- rather than public investment -- and consumption should drive growth," according to the IMF.

"While growth of investment will slow down as the highway construction gets to its closure, its contribution to growth will remain strong in 2018," the World Bank said in its economic overlook for Montenegro.

For Bemax, a leading Montenegrin construction company, participating in the construction translates to a turnover of about 200 million euros (232.2 million U.S. dollars). To build the highway, it now employs around 700 people, of whom about 600 are local workers, its executive director Veselin Kovacevic told Xinhua.

Becerovic Branislav, a 39-year old worker who was handling concrete iron near the 160-meter-high piers under construction, said the job gave him a much better income than ever before.

Montenegrins who are not directly involved in the project are also looking eagerly forward to its completion.

Vidic Bogic, a villager in the Vilac region, north of Podgorica, said Chinese workers had already made a positive impact on the community: a regular water and electricity supply, which had not been available, were brought to his neighborhood to aid the construction work.

"We have to keep in mind that an interchange is nearby, and hopefully once the construction has been finished, it will improve the lives of people around here and they will finally stop moving out of the area," Bogic told Xinhua via an interpreter.

Tesic Milena, a nun at Saint Nicolas Church, said the highway is all the rage at her church. She keeps hearing how the highway will benefit Montenegrins with faster travel and decreased transportation costs.

When asked about fears that the younger generations would be burdened by the loan for the highway, the 59-year-old said: "If young people start to work more and have better work habits, there will be no problems."


The Montenegrin government believes by building the highway it is bridging the gaps between its northern and southern parts as well as between the country and Europe.

While its mountainous north is the beefy brawn to the coast's polished pulchritude, a lack of proper roads is holding back tourism, arguably the country's biggest economic potential, as well as agriculture and other industries.

"Regional differences in economic development are quite considerable," said a 2013 National Human Development Report by the United Nations Development Program, with "the northern region being in the most disadvantaged position."

"The coastal region, for instance, had the lowest unemployment rate of 11.4 percent, while in the northern region almost 33 percent of the active population was unemployed," the report said, adding that inadequate infrastructure is one of the barriers that has to be addressed for integration into the EU.

Despite that the highway improving Montenegro's connectivity with the EU -- in the north through Serbia to central Europe, and in the south through the Adriatic sea to the Mediterranean -- there have been plenty of Western accusations that China has a secret agenda in Europe.

Words like "backdoor" or "trojan horse" in the Balkans have headlined stories on Politico Europe, and the Reuters report said Montenegro could give Beijing "a port of entry into Europe from the Adriatic."

"That fear of Europe that China will 'take' Montenegro, or Eastern Europe, is based on the complete ignorance of history," Vukotic, the university rector, said.

Liu Zuokui, director of the Department of Central and Eastern European Studies under the Institute of European Studies at the Chinese Academy of Social Sciences, said the fear is unwarranted and overblown, particularly given that Montenegro is already part of the North Atlantic Treaty Organization (NATO), could join the EU as early as 2025, and the fact that China is 7,000 km away.

"Chinese involvement now links Montenegro -- literally -- closer to Europe," he said.

From another perspective, Liu argued, the highway should be welcomed as the region stands to benefit from Chinese funding and building expertise, thus saving EU resources on the Balkans, traditionally the poor cousins of Western Europe.

For Montenegro, the highway carries its hope for "the same road that we have been on in our political agenda for a long time," said Belan, the government advisor, "the road to Europe and the community of the most developed countries."

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