Government: Last year's budget deficit at HRK 12.8bn

Last year's budget revenues were HRK 114.7 billion, up 5.4% in comparison with the year before, while expenditures increased by slightly less than 2% to HRK 127.5 billion, as a result of which the budget deficit was HRK 12.8 billion, according to a report on the execution of the 2014 budget, adopted by the government at its meeting on Thursday.

Finance Minister Boris Lalovac said that positive macroeconomic trends had an impact on the budget execution, citing a 6.3% increase in exports, industrial production growth of 1.3% after five years of decline, retail sales growth of 0.3% and a record number of tourist arrivals and overnight stays (a 5.6% increase in tourist arrivals and a 2.6% increase in overnight stays). The number of unemployed people dropped by 5% to 328,187, and the current account showed a surplus of EUR 286 million or 0.7% of GDP, he added.

The single largest contribution to the budget revenues in 2014 came from Value Added Tax (VAT) revenues in the amount of HRK 40.9 billion, which was an increase of 1.7% in comparison with 2013.

On the expenditure side of the budget, the government cut expenditures on employees by 1% to HRK 21.5 billion, reduced subsidies by about HRK 360 million and slashed outlays by HRK 415 million to HRK 7.6 billion, bringing them to the 2006/2007 levels.

The minister noted that financial expenditures had increased because many debts had been converted into public debt last year, with interest increasing by about HRK 500 million.

Citing the IMF methodology, Lalovac said that the deficit in 2014 was 4.1% of GDP or HRK 13.5 billion, of which the central government deficit was HRK 12.8 billion, the deficit of extra-budgetary users was HRK 317 million and the debt of local communities was HRK 358 million.

"The central government deficit was 12.8 billion kuna, with interest expenditures of 10.6 billion kuna, which shows that the government made significant efforts to reduce the expenditure side of the budget," Lalovac said.

Speaking of the difference in the calculation of the deficit using the IMF methodology (4.1% of GDP) and the Eurostat methodology (5.7% of GDP), Lalovac said that this was mostly due to the fact that the European Union's statistical office did not recognise HRK 3 billion in transfers from the second to the first pension pillar, while guarantees paid for HZ Cargo and some other public companies were taken into account.

The report on the execution of the 2014 budget was sent to parliament along with a report on the application of fiscal rules, in which the government admitted that the fiscal rule for 2014 was not met.

An interim fiscal rule is currently in force, until a medium-term budget goal and an adjustment plan are defined, according to which the annual general budget expenditure growth rate must not be higher than the projected annual GDP growth rate.

"The fiscal rule for 2014 was not met. General budget expenditures for the calculation of the fiscal rule were reduced by 0.3%, while the projected GDP in current prices, which was used in the latest amendments to the 2014 budget, recorded an annual decline of 0.6%," the report says.

(EUR 1 = HRK 7.53)

(Hina) vm

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