Croatia plans to reduce debt to GDP ratio to 65.4% over three years

The government on Thursday adopted a 2019-2021 public debt management strategy under which the public debt to GDP ratio is projected to fall from 71.6% in 2019 to 68.5% in 2020 and to 65.4% in 2021.

Outlining the strategy, Finance Minister Zdravko Maric said that in the past three years, considerable progress had been achieved in managing public finances, with focus being on the expenditure side of the budget and on using revenues to reduce public debt and the tax and parafiscal burden on citizens and the enterprise sector.

Maric recalled that in 2016, the budgetary deficit was reduced to 1% of GDP, and public debt was slashed to 80.5% of GDP.

In 2017 and 2018, positive economic trends continued and Croatia achieved a budget surplus of 0.8% and 0.2% of GDP respectively, he said.

Last year, the surplus would have been higher if the government hadn't had to tackle the Uljanik crisis, covering enforced guarantees in the amount of HRK 2.5 billion, Maric recalled.

Reduction of public debt to GDP ratio by over 9 pp

These fiscal trends have resulted in the narrowing of the public debt to GDP ratio by over 9 percentage points, and this ratio fell from 83.7% in late 2015 to 74.6% in 2018, which is more than the average reduction in the European Union, Maric said.

In parallel to these trends, conditions for borrowing have improved both on the local and foreign financial markets. In addition to that, the active policy of managing public debt has led to the reduction of state outlays for interest by nearly three (3) billion kuna, the minister said.

Prime Minister Andrej Plenkovic said that this sum was equivalent to the cost of construction of Peljesac Bridge.

The Croatian and international capital markets have responded positively to those developments, making it possible for the credit risk premium to go down by more than 200 basis points, said Maric.

The minister believes that there is still room to cut interest rates regardless of  "numerous announcements that reference interest rates will start going upward".

He underscores that the government's economic policy will be based on three pillars: attracting high-quality investments, making structural reforms efficient, and ensuring macroeconomic stability and sustainable public finances.

Text: Hina

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