ZAGREB, 27 May 2022 - The parliament on Friday passed by a majority vote a revised budget for 2022, whereby the expenditure side will increase by HRK 10.9 billion to HRK 184.7 billion and the revenues will go up by 6.6 billion to HRK 171 billion.

As a result, this year's budget deficit will widen from the initial projections of 2.6% of the GDP to the deficit-to-GDP ratio of 2.8%.

Most of the rejigged budget outlays refer to the health system, in the amount of HRK 4 billion, of which the largest share will be used to cover hospitals' and pharmacies' debt to suppliers.

The opposition MPs who voted against the budget revision criticized the proposal as bad.

In mid-may, the Fiscal Policy Commission said that it believed that the proposed 2022 budget revision was appropriate to the current circumstances however, this independent body underscores that it is necessary for Croatia to absorb more EU funds to fund investments and schemes to boost productivity and implement cost-cutting reforms.

In a press release released on 17 May, the commission underscored the need to implement reforms to limit expenditure for healthcare, pensions, and unemployment benefits.

Also today, the parliament passed a law on the registry of persons with disabilities.

The legislation on investment stimulation was today endorsed, providing for some additional benefits for users of state subsidies for investments in the event when their projects are affected by extraordinary circumstances caused by the COVID-19 pandemic.

(€1 = HRK 7.529160)

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ZAGREB, 27 Oct 2021 - Parliament is expected to debate the draft 2021 budget revision next Wednesday and the draft 2022 budget early in December, Finance Minister Zdravko Marić said on Wednesday.

The idea is to debate and vote on the revised budget as soon as possible so that all reallocations and payments can be made by the end of the year, he told reporters.

Asked to comment on the fact that the health sector's debt to drug wholesalers was growing again, Marić said it was growing even though HRK 9 billion was set aside for it in the budget and that one should add to that the HRK 23 billion budget of the Croatian Health Insurance Fund.

That, he said, points to the need to reform health expenditures by spending taxpayers' money better and more effectively, while keeping the quality of healthcare.

Asked if there was money for a new round of payments to businesses affected by the pandemic, Marić said the draft 2022 budget did not envisage this year's level of job-keeping measures. He added, however, that the draft 2020 budget did not envisage them either, yet they were adopted to protect people's health and keep jobs.

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ZAGREB, 21 Oct 2021 - Croatia ran a consolidated general government deficit of HRK 27.85 billion in 2020, which was 7.4% of GDP, while the public debt to GDP ratio increased to 87.3%, the National Bureau of Statistics (DZS) reported on Thursday. 

By comparison, the general government budget ran a surplus of HRK 1.2 billion or 0.3% of GDP in 2019, of HRK 864 million or 0.2% of GDP in 2018, and of HRK 2.8 billion or 0.8% of GDP in 2017.

Last year's deficit was mainly due to the impact of the COVID-19 pandemic on economic activity and because of state aid to the economy.

The consolidated general government debt reached HRK 330.23 billion in 2020, or 87.3% of GDP, ending the multi-year trend of decline.

By comparison, the consolidated public debt was HRK 293.2 billion or 71.1% of GDP in 2019, HRK 286.6 billion or 73.3% of GDP in 2018, and HRK 285.4 billion or 76.7% of GDP in 2017. 

Deficit growth is driven by the economic fallout of the COVID-19 pandemic

The 2020 deficit was largely influenced by the budget balance deficit, which amounted to HRK 21.98 billion or 5.8% of GDP, increasing by HRK 22 billion from the previous year.

The DZS said that the high deficit was the result of a decline in economic activity caused by the COVID-19 pandemic, which had a considerable impact on the fall in tax revenues and social contributions. On the other hand, the government took long-term measures on the expenditure side of the budget to protect jobs and finance the costs of healthcare.

In 2020, taxes on production and imports totaled HRK 70.7 billion, down by 13% compared with 2019, while current taxes on income and wealth amounted to HRK 24.7 billion, a decrease of 7.4% compared with the previous year. Revenues from net social contributions fell by 4.8% to HRK 45.07 billion.

The 2020 deficit was also generated by the poor financial result of extrabudgetary beneficiaries and public companies as well as by the increase in subsidies and welfare and employment allowances.

Last year, interest expenses totaled HRK 7.4 billion, down by 17.5% compared with 2019, when they amounted to HRK 8.97 billion.

On the other hand, investment increased by 19.3% to HRK 21.3 billion. However, capital transfer expenses reached HRK 942 million, which contributed to the deficit growth.

The primary general government deficit, which shows the difference between revenues and expenditures without interest expenses, was HRK 20.45 billion or 5.4% of GDP, compared with the primary general government surplus of HRK 10.17 billion in 2019.

The government debt to GDP ratio up by 16.2 pp

In 2020, the general government debt increased by HRK 37 billion or 12.6% from 2019, of which HRK 33 billion was generated by net borrowing and the rest by the depreciation of the kuna-euro exchange rate.

The trend of the decreasing Maastricht debt to GDP ratio, which began in 2013, was suddenly reversed by the COVID-19 crisis. In 2020, the general government debt to GDP ratio rose by 16.2 percentage points from 2019 to 87.3%, as a result of the government's increased need for borrowing and the GDP decline caused by the drop in economic activity.

The DZS submits a report on the budget deficit and general government debt to the European Commission twice a year, in April and October. Based on such reports, the Commission decides whether EU member states meet the Maastricht criteria, namely that their general government deficit to GDP ratio is below 3% and that general government consolidated debt is below 60% of GDP.

The Croatian parliament amended the 2021 budget in June, projecting growth of 5.2%, a consolidated general government deficit of 3.8% of GDP (HRK 15.3 billion), and a public debt to GDP ratio of 86.6%.

(€1 = HRK 7.504808)

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