Business

Croatia’s Public Debt Stabilizes

By 3 March 2017

The debt has stabilized at slightly under 290 billion kuna.

At the end of November last year, Croatia’s public debt amounted to 289.7 billion kuna, which was about 79 million kuna more than the year before. Since during the previous eight months the debt recorded a decline on the annual basis, it can be concluded that the level of public debt has finally stabilized, announced on Friday the Croatian Chamber of Economy (HGK), reports Večernji List on March 3, 2017.

In November, the public debt, according to the data from the Croatian National Bank (HNB), was 2.3 billion kuna larger than in October, with internal debt increasing by 1 billion kuna, predominantly due to loans, while the external debt increased by 1.3 billion kuna, due to the growth of debt on long-term securities.

Given the GDP growth, the stabilization of the public debt “has a beneficial effect on the level of indebtedness by reducing the public debt-to-GDP ratio which will, after eight years of growth, bring about a decrease in this indicator, with a positive impact on macroeconomic stability of the country and bring opportunity for upgrade of the credit rating”, said HGK.

They also stated that the positive developments were related to the acceleration of economic growth, but also to the successful fiscal consolidation, because the much lower budget deficit limited the need for borrowing. In the first eleven months of 2016, the state budget recorded 6.7 billion kuna lower budget deficit than the previous year. Furthermore, the high liquidity of domestic financial markets and favourable financing terms have resulted in a greater orientation of state toward domestic borrowing. Therefore, the internal general government debt increased by 8.8 billion kuna or 5.1 percent, while foreign debt decreased by 8.7 billion kuna or 7.4 percent. Thus, in November of last year, the share of domestic debt in total public debt increased by 3 percentage points, to 62.1 percent.

While the central government debt grew, debt of other components of general government decreased – in the social security funds by 1.1 million kuna, and local authorities by 577.6 million kuna. However, the debt of the central government determines the overall trends because it represents as much as 98.5 percent of the general government debt.

“With continuing economic growth and the consolidation of public finances, we expect that this year the public debt will move towards the level of 81.5 percent of GDP, which was planned by the public debt management strategy for the period from 2017 to 2019. This will have a positive impact on the possibility of upgrade of the credit rating and thus create more favourable terms for foreign financing. However, the public debt to GDP ratio is still high and significantly above the Maastricht criterion of 60 percent. It is also above the median of states with the same credit rating (51.4 percent according to Fitch)”, concluded the HGK analysts.

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