The rating agency’s upgrade of Montenegro's foreign long-term issuer and senior unsecured debt ratings from Ba3 from B1 is a result of the improving status of the economy, which only a few years ago was overburdened by massive foreign loans on infrastructure projects and poor growth prospects.

The upgrade reflects changes currently underway in Montenegro. While many countries in Europe and in the Balkans in particular, have seen their populations decline, the number of people living in Montenegro increased by 2% between 2013 and 2023, according to the census data published in February this year.

A surge in the number of Ukrainian and Russian people coming to the country after 2022 has swelled its populace. The census indicated one in six of the small country’s 633,158-strong population are now of either Russian or Ukrainian origin.

On the back of the higher consumer demand caused by the newcomers, Montenegro’s GDP rose by 6.3% year on year in 2023.

Moody’s says that GDP growth will moderate to 3.7% in 2024 and 3.8% in 2025.

"While the deceleration in 2024 is driven by a moderation of private consumption growth as the boost from the inflows of Ukrainian and Russian nationals fades, investment will remain a key growth driver, given the acceleration of projects in tourism and energy sectors, and road infrastructure.”

The rating agency pinpointed the construction of the second section of the Bar-Boljare highway as one which will provide a boost to the country.

The first stage of the highway, a section of the route linking the Serbian capital, Belgrade with Montenegro’s Adriatic coast, had proved a bugbear to Montenegro, due to the unfavorable terms of repayments on Belt-And-Road financing from China. Overruns caused by poor oversight of the project only made matters worse.

In 2021 a consortium of European banks bailed out the road project by offering more favorable financing terms.

Moody’s also see some dangers ahead for Montenegro’s attractiveness to lenders, particularly as many reforms are needed to ensure its “ambitious timetable” of European Union accession stays on course.

“The challenges facing the Montenegrin economy in the coming period include risks to the fiscal position posed by the costs of the recently announced reform package, large upcoming refinancing needs, and a slowdown in EU reforms progress,” the report said.