Montenegro facing debt to China alone as EU shuts its door

Montenegro facing debt to China alone as EU shuts its door

European and Asian newspapers report that the European Union will not be supporting Montenegro related to its $1 billion debt towards China for a still-to-be-built highway, a move that upsets the balance in the contest over influence raging in the Balkans.

NikkeiAsia recalls that Montenegro, a NATO member, is considered a front-runner to join the 27-member bloc, which is looking to bolster its geopolitical sway as it increases its rivalry with countries to its east, including China and Russia.

Montenegro sent out a call for help last month, with the Deputy Prime Minister Dritan Abazović asking the EU to refinance the loan or risk losing influence to China.

The call was rejected this week, when the European Commission said it would not pay off loans from third parties. However, it said it could provide assistance through other means, including helping provide cash for part of the highway project through its Economic and Investment Plan for the Western Balkans.

A commission spokesperson said the bloc was concerned about the impact of Chinese influence in the region.

The debt predicament stems from a plan for the construction of a 165 km-long highway connecting the port city of Bar to Serbia. Construction first began in 2015.

The highly anticipated expressway was expected to spark economic vitality. However, the idea drew criticism over the financial feasibility of such a large-scale project in a country with a population of just 620,000 people. European lenders balked on financing the project.

China stepped in when the Export-Import Bank covered most of the construction costs of the first portion through a dollar-denominated loan. The debt carried a 2% interest rate along with a 20-year repayment schedule sweetened by a six-year grace period, according to Reuters.

The deferment has expired, however, and Montenegro will need to start paying back the loan by the end of this year. In the event Montenegro fails to turn in a payment, China reserves the right to take over land and assets according to the agreement entered by the previous Montenegro government.

As a result of Chinese financing, Montenegro’s public debt is believed to have ballooned to over 90% of last year’s GPD. The coronavirus pandemic struck a blow to the mainstay tourism industry, putting the country in dire straits to repay debt.

The highway project itself has been burdened with massive delays, and the date of completion is uncertain. /ibna