Ministry of Finance will continue to look for cheaper borrowing

Finance Minister Boris Lalovac on Thursday said that the latest favourable borrowing arrangement would save the country around HRK 350 million in interest and announced that he would continue to look for borrowing under more favourable conditions to reduce interest rates on existing loans.

Croatia on Wednesday issued a 1.5 billion euro 10-year benchmark-sized bond at mid-swaps plus 260bp area, with a 3.3% yield. That is the cheapest borrowing Croatia has taken on the foreign market mostly due to the exceptionally flexible monetary policies by the European Central Bank and the introduction of nonconventional measures - programme of quantitative monetary easing for eurozone states - resulting in yields of peripheral members of the euro area having declined to record low levels.

"With just this issue of bonds, Croatia could save around HRK 350 million on interest each year if we recall that a year ago loans had an interest rate of 6%...if we are paying out HRK 10.5 billion in interest alone from the budget which has a HRK 13 billion deficit or that 80% of the budget deficit refers to interest, now that burden on the budget will be relieved," Minister Lalovac said following the cabinet meeting on Thursday.

"There was a great deal of interest for Croatia's bonds, particularly since the benchmark was a little different this time," he said.

He recalled that until recently Croatia could borrow for a period of only up to five years but now there is more confidence in Croatia's public finances and that in the long term the deficit would lessen and public debts would stabilise through the European Commission's Excessive Debt Procedure.

He explained that these were not new debts but a way of repaying old debts with cheaper borrowing conditions, adding that that is what other European Union member states do too.

Asked whether Croatia would seek loans in Abu Dhabi, Lalovac said that he would go wherever he could save the country money.

The press on Thursday reported that the government was negotiating with the United Arab Emirates over a possible two billion dollar ten-year loan with an interest rate of 1.5% in an effort to reschedule expensive old loans.

"We have to be proactive. We are discussing a major rescheduling of public debt with the (central bank) governor but also anyone who can help Croatia get to cheap capital. One of our strategic interests is to finally start reducing high interest rates," Minister Lalovac concluded.

(1 EUR = 7.7 HRK)

(Hina) sp

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