Interview of the Minister of Finance, Milorad Katnić, for Bloomberg

June 17 (Bloomberg) -- Montenegro will keep issuing about 200 million euros ($285 million) of Eurobonds a year to ensure stable financing of its budget deficit and lower borrowing costs, Finance Minister Milorad Katnic said.

“We plan to continue to borrow via Eurobond issues in the coming years, around 200 million euros a year,” Katnic said today in an interview at a conference in Becici, Montenegro. The country, the smallest former Yugoslav republic, has already raised 180 million euros from Eurobonds this year and will spend the money to repay more expensive or maturing debt.

“This year alone we will spend 140 million euros to service other debts,” Katnic said, adding that the country spends around 4 percent of GDP a year on debt servicing. “The important thing is that we build a yield curve and that our new borrowing gets cheaper,” he said.

Katnic said he had no concerns that the Greek debt crisis would lead to demands that Montenegro, which is seeking to join the European Union, stop using the euro as its currency.

“It is in the interest of the EU and the ECB that the countries joining are stable,” Katnic said. “Even if they were explicitly demanding that we abandon the euro we will not abandon it”.

Montenegro adopted the euro a decade ago, while still part of the former Yugoslavia, avoiding the fallout from financial and price instability in the neighboring republic of Serbia.

Growth Projection

The Montenegrin government is hoping economic growth will accelerate in 2012 to as much as 5 percent, mainly led by tourism and construction, from 2.5 percent this year, Katnic said.

The global financial crisis has slowed government plans to cut its budget deficit more quickly. This year’s shortfall will narrow to 3 percent of GDP from 3.7 percent in 2010, above the initially planned 2.6 percent, the minister said. Inflation, currently 3.6 percent and mainly driven by the global increase in food and fuel prices, should slow to 3 percent by the end of the year, he said.

The country is hoping to attract foreign direct investment of as much as 600 million euros or 17 percent to 18 percent of GDP this year, Katnic said.

“The trend is positive in the first months of the year with 45 million euros a month,” he said. “If big tourism projects are started after the tourist season, we can expect a significant inflow of foreign direct investments this year.”

Journalist: Gordana Filipović