Montenegro’s parliament adopted the budget for 2021 after months of political tensions that escalated in the hours before the vote when Prime Minister Zdravko Krivokapic’s government proposed last minute amendments allowing it to borrow €900mn. 

The proposal added to Krivokapic’s long-running conflict with the pro-Russian Democratic Front (DF), part of the ruling coalition, and was eventually scrapped, allowing the government to get the budget through parliament. 

The budget was backed by 42 MPs in the 81-seat parliament. Revenue is set at €1.88bn, or 40.6% of the expected end-year GDP, up by 14.6% y/y. Spending is projected at €2.02bn, down 2.2% y/y.

Until now, the government was able to spend one-twelfth of last year’s budget each month, which covered essential spending but did not allow Podgorica to introduce additional stimulus measures for the economy that has been battered by the coronavirus (COVID-19) pandemic. 

Tourism-dependent Montenegro suffered the deepest economic contraction across the emerging Europe region in 2020, with GDP falling by 15.2% compared to 2019. The contraction continued through to the first quarter of 2021, when GDP fell by 6.4%, making Montenegro the worst performer in a comparison of the EU27 and selected other European countries. 

The budget, which was adopted by the government at the end of March, had become a hostage of political disagreements for months with the Democratic Front refusing to back it unless Krivokapic agreed to a government reshuffle. The party had objected from the start to Krivokapic’s decision to fill his cabinet with technocrats rather than political party members. 

The rift deepened shortly before the vote when the government proposed the amendment on borrowing an additional €900mn that Finance Minister Milojko Spajic said would enable it to repay loans that are burdening the economy early and replace them with more favourable ones.

“Although we have started well with the reduction of debt, we are about to repay more unfavourable loans. With today's amendment, we want to enable such loans to be exchanged for more favourable ones, without currency risk. MPs will certainly recognise the need to refinance expensive, old loans,” Spajic wrote on Twitter. 

He pointed out that Montenegro’s debt, which fell just below 90% of GDP at the end of March from 103% of GDP in 2020, after the new government issued a €750mn Eurobond immediately after taking office, will not rise with the borrowing of the €900mn but will be restructured. 

However, under pressure from the Democratic Front, the government withdrew the proposal for new borrowing in an attempt to end the deadlock and persuade the parliament to finally approve the budget. At the same time, Krivokapic promised to initiate a dialogue with the ruling coalition that comprises multiple small parties and coalitions. 

With a small and highly-fragmented majority, passing the budget was an important test for Krivokapic’s government that came to power at the end of 2020, replacing President Milo Djukanovic’s Democratic Party of Socialists (DPS) after three decades in power.

Krivokapic further inflamed tensions during the debate, when he talked of the “lack of morale and hypocrisy” in parliament. The statement angered other parties aside from the Democratic Front. 

“This is a blow, first of all, to the government — that it is run by such a profile [as that of Krivokapic] completely unworthy of running state affairs,” said Miodrag Lekic, the leader of the Demos party, another member of the ruling coalition, as quoted by public broadcaster RTCG. Lekic went on to call Krivokapic “immature” and a “simpleton”. Deputy Prime Minister Dritan Abazovic attempted to calm down the situation, apologising for any “unbalanced statements”.