ZAGREB, 24 May 2022 - The ministry of finance on Tuesday dismissed the accusations made by the Franak association about the authorities having betrayed Croatian consumers.

Over the past few years, the government has continued, both on its own and in cooperation with the State Attorney's Office (DORH), to dismiss all attempts aimed at the questioning of the constitutionality of so-called laws on the conversion of CHF-pegged loans and their adjustment with the EU acquis, the ministry said in a press release.

First and foremost, this government is committed to protecting consumers, and to this end, it has provided arguments proving that the above-mentioned laws are in line with the Croatian Constitution and also in accordance with the EU acquis communautaire, which was conducive to efforts to keep those laws in effect, with an emphasis on their being adopted to redress imbalances in the rights and responsibilities of the parties to the relevant contracts, said the ministry.

The ministry states that after the Court of the European Union delegated rulings on the consumers' rights to national courts and given that several relevant trials are ongoing in Croatia, the government will refrain from any further comment that can amount to interference in those processes for the time being.

For more, check out our politics section.

ZAGREB, 20 May 2022 - Finance Minister Zdravko Marić said on Friday that in addition to all the measures to buffer the impact of inflation, we must not neglect and need to maintain economic growth and do everything for that growth to be 3% this year and higher if possible.

Addressing the 25th Financial Market conference in Pula, Marić said that he cannot comment on the question of possibly freezing prices, recalling the package of measures to ease inflationary pressure on citizens' standards, saying that it would be adapted.

The minister added that there is a lot of uncertainty and it is difficult to forecast price trends, adding that the most vulnerable groups were the most threatened because the price of food and energy is the most prevalent in their shopping basket.

Asked what the monetary policy can do in the fight against inflation, Marić said that the measures until now were exclusively fiscal policy.

Asked if kuna currency appreciation would be worthwhile, Marić said there was room to maneuver in that regard but that is up to the Croatian National Bank (HNB).

The HNB's main task is to maintain price stability and it should have something to say in these circumstances.

It is more than likely that this year will we have a higher inflation rate than the increase in wages, he said, adding that in the past few years wages increased faster than inflation.

Inflationary alarm already sounding

Asked about the inflation threshold that would signal a "red alert" to the government, Marić said the alarm has already sounded. We have the highest inflation rate and we have already reacted. The measures will be adapted but it isn't possible to completely remove the pressure.

He added that an additional HRK 3.5 billion has been allocated to repay the debt to drug wholesalers, however, that is not the solution because new debts are occurring. The healthcare system needs an overall overhaul.

He confirmed that a new international bond matures at the end of May and in July he plans to issue new domestic bonds.

For more, check out our politics section.

ZAGREB, 18 May 2022 - Speaking in the Sabor on Wednesday, Finance Minister Zdravko Marić denied claims by some opposition MPs that allocations for post-earthquake reconstruction had been decreased in the 2022 budget revision was decreasing allocations for reconstruction.

Funds are not being decreased, in fact, they are being increased by about HRK 300 million and the use of funds has been facilitated, Marić told lawmakers during a debate on the state budget revision.

Prior to the formal debate on the budget revision, the opposition made a series of objections to the government's document, saying that funds for healthcare had not been planned well and that funding for reconstruction was being decreased.

Social Democratic Party (SDP) leader Peđa Grbin asked why funds for reconstruction were being decreased by more than HRK 100 million.

He recalled that when the budget was adopted the SDP said that the allocation for the health sector had not been planned well and concluded that another budget revision would be necessary in the autumn and possibly a third one by the year's end.

Anka Mrak Taritaš (Glas) said the budget revision was proof that there would be no reconstruction. She said that funds had been increased for the health and defence ministries, which, she said, were headed by the two least successful ministers.

MP: Damage caused by inflation possibly HRK 20 billion

MP Zvonimir Toskot (Bridge) said that his party had calculated that the damage caused by inflation could amount to HRK 15 or even HRK 20 billion and that "nobody is discussing how to compensate for that damage," to be paid by the entire society.

If the cost of corruption of HRK 70 billion is added, we get an amount of HRK 90 billion, which is half the budget, he said.

Željko Sačić (Sovereignists) said that he was unpleasantly surprised that the revision did not allocate more funds to the USKOK anti-corruption office or the state attorney's office to improve their working conditions.

"It seems as though the state has profited in this crisis. The question though is how will citizens and enterprises survive," said MP Ružica Vukovac, noting that the state had collected HRK 1.8 billion more in VAT and HRK 1.9 billion more in contributions on wages.

HDZ group supports budget revision

The Croatian Democratic Union (HDZ) group supported the government's budget revision proposal.

Grozdana Perić (HDZ) recalled that the start of the year brought new geopolitical problems resulting in problems in energy supply and inflation growth, which was why the government had to deal with additional problems, such as ensuring the sustainability of the health sector, pensions, and help citizens with energy prices.

Ivana Posavec Krivec (Social Democrats) responded by saying that the budget revision was not due to the situation caused by global circumstances but rather due to the government's poor budget planning and the failure to implement crucial reforms.

For more, check out our politics section.

ZAGREB, 12 May 2022 - Finance Minister Zdravko Marić said on Thursday that the budget revision proposal for this year envisages HRK 75 million for gas supplies, but that that item is "open," adding that the revision should be sufficient until the technical revision usually done at the end of the year.

Answering reporters' questions, Marić said that "HRK 75 million has been secured for gas procurement, which isn't a big amount but that item is still open and a redistribution of funds is still possible."

When it comes to guarantees, the total amount is about HRK 1 billion, said Marić, adding that the model for securing gas supplies for next season will be presented when it is finalised.

He said that the objective is to find a model that will secure adequate filling of storage capacity and ensure everything that is necessary for the next heating season and that the relevant ministries, Croatian Bank for Reconstruction and Development as well as representatives of gas suppliers are working out the model.

Asked if that meant that the state would be involved in supplying gas and filling storage facilities, Marić answered affirmatively, confirming that that implied cooperation between the state and the HEP state-owned electricity provider.

On Saturday, Marić said that in normal circumstances the period between two heating seasons is used to fill gas storage facilities. However, in the current disrupted circumstances and given the exceptionally high price of gas, small gas suppliers can hardly cope with it financially, he said then.

Budget revision will be sufficient until technical review at the end of the year

Marić said that the current budget revision should be sufficient until the end of the year.

"At the end of the year... we have a technical budget revision which in fact just states the situation with budget revenue and expenditure. If in the meantime... some significant deviation occurs, we will have to be prepared for it, however, this revision should be sufficient until the end of the year, until the technical review," he said.

Presenting the budget revision at the cabinet meeting on Thursday, Marić said that the guarantee reserve had been increased as one guarantee had been protested. Asked which guarantee it was, he said that VTB Bank had protested a guarantee for Brodosplit amounting to €32 million.

For more, check out our politics section.

ZAGREB, 4 May 2022 - Finance Minister Zdravko Marić said on Wednesday that the ministries of finance and economy had been working together to ensure secure supplies of oil, gas, electricity and other energy products.

"We have been doing that for some time. We have been affected by rising prices but we have the obligation to secure adequate and quality supplies," he said when asked about the announcement that the government would make sure the underground gas storage facility Okoli was filled, the cost of which, according to reporters, was estimated at billions of kuna.

Noting that it was necessary to be prepared for all possible circumstances and possible additional changes and deteriorated circumstances such as those in the past few weeks and months, Marić said that the model that was being worked on would certainly have some repercussions for the state budget considering energy prices, mentioning in that context gas and its higher purchase price.

"Naturally it is not in our interest for HEP (power supplier) and others to suffer losses and have problems. That is where we come in and we will take everything into consideration," he said without going into detail, adding that the model would be presented once it was finalised.

Brodosplit is a serious issue

Answering questions about the situation in the Split-based shipyard Brodosplit, Marić said that that topic was being taken seriously. "I recently said clearly that we have never turned our backs on any situation of that kind and we will not do so now. However, for something to be realised, preconditions need to be fulfilled first," he added.

At one moment, the impression was created that such situations can be resolved exclusively with a loan from the Croatian Bank for Reconstruction and Development (HBOR) and a state guarantee, Marić said, reiterating that state guarantees are taxpayers' money and that it was necessary "to take all the circumstances and preparations into consideration as well as what follows after that."

"Let the experts at HBOR obtain all the important information just like they would for any other loan for a potential client... so we can get a guarantee that the business model will continue to be tenable," said Marić.

The Brodosplit shipyard recently applied for pre-bankruptcy proceedings due to €60 million in loans from the Russian-owned VTB Europe Bank that were to be used for the construction of two ships, however, due to sanctions against Russia the dock's accounts are currently blocked.

For more, make sure to check out our dedicated politics section.

ZAGREB, 4 May 2022 - Finance Minister Zdravko Marić and Croatian National Bank (HNB) Governor Boris Vujčić on Wednesday expressed optimism regarding the fulfilment of the inflation criterion for euro area entry, with Vujčić saying that it would be unusual for Croatia to be asked to have an inflation rate below the current euro area rate.

Speaking at the 15th session of the National Council for the introduction of the euro as legal tender in Croatia, Marić recalled that a few days ago the government sent a convergence programme to Brussels and now it expected an assessment and a report to be published by the European Central Bank and the European Commission, to be followed by the checking of compliance with the Maastricht criteria, with the focus being mostly on inflation.

Marić said that the average inflation in Croatia for the first three months of 2022 was 6.3%, which, he said, was the euro area average and slightly below the EU average.

The Maastricht criteria refer to exchange rate stability, price stability, interest rate stability and two important indicators related to public finance - budget deficit and public debt.

Under the Maastricht criteria, the assessment refers to the inflation rate in the last 12 months, but not in relation to the general average but to the average of three countries with the lowest inflation rates. That means that Croatia should have an inflation rate that is a maximum 1.5 percentage points above the average inflation rate in the three EU countries with the lowest inflation, Marić said.

He added that the EC and the ECB have the right to exclude some of the countries from the calculation at their own discretion, which, he said, happened in 2014.

Marić said that without wishing to prejudge anything, he believed that European partners fully understood that the increased inflation in Croatia did not in any way differ from the situation in the EU.

"In anticipation of data on inflation in April.... we firmly believe that Croatia will meet that remaining criterion," he said.

The target date for Croatia's entry to the euro area is 1 January 2023.

Vujčić: Importance of euro area membership in times of crisis  

HNB Governor Vujčić said that the reference value a country must comply with to join the euro area had so far never been lower than the average inflation in the euro area.

"If that is so, Croatia too should be able to meet the criterion because it would be a little odd to demand that it should have a lower inflation rate than the euro area which it is joining," he said.

He underlined the importance of euro area membership in times of crisis, noting that crises were easier to overcome and the consequences were significantly fewer for euro area members.

Croatia's lagging behind in terms of growth in the last decade is due to the fact that in crises its decline was much larger than in other countries, he said, noting like Marić, that euro introduction would not cause additional inflationary pressure.

Asked where after the introduction of the euro, kuna coins would be stored, Vujčić said that a solution would be found in cooperation with the Defence Ministry, to be announced after it was determined how they would be stored.

Vujčić also reported that trial euro coins with the national sides that had been approved had already been made and that after a decision on Croatia's euro entry in July, full production should be launched.

First increase in interest rates by ECB possibly in July already

Given that the US Fed Bank has already started a cycle of increasing interest rates, reporters asked Vujčić if the ECB planned the same move, to which he said that last year already he had announced that we could expect a gradual increase in interest rates in 2022 and that the effects were already visible on the bond markets.

When it comes to the ECB, it first plans to halt the programme of quantitative easing by the third quarter of this year, after which interest rates will increase. "We don't know when that will be, however, it is possible that the first increase in interest rates by the ECB could be as early as July," Vujčić said.

He explained that a good part of what will occur with increased interest rates of central banks has already impacted the market, which anticipated it. "When something is announced, financial markets don't wait for that to occur but immediately incorporate it in the price," Vujčić said, adding that it was usual in periods of growing inflation for central banks to respond by increasing interest rates.

In mid-April, the Ministry of Finance released euro bonds on the international capital market with a total nominal value of €1.25 billion, a maturity of 2032, an annual coupon interest rate of 2.875% and a real yield of 2.975%.

If they were to be issued today, the reference interest rate would be 33 base points higher, which means they would be 0.33% more expensive, hence about €4 million will be saved on interest each year, Minister Marić underlined to illustrate the volatility of the market, due also to the war in Ukraine.

PM: Croatia's economy most euroised of all EU economies

During the meeting of the National Council, chaired by Prime Minister Andrej Plenković, the PM presented the design of the national side of the €1 coin and a final bill on euro introduction, to be sent to the parliament on Thursday for second reading.

At the meeting, reports were submitted on the progress made in implementing activities related to introducing the euro.

Plenković said that euro introduction and accession to the Schengen Area were two strategic goals for deeper integration with the EU.

He said that Croatian citizens and the economy would benefit from membership in the euro area, underscoring that Croatia's economy was the most euroised of EU economies outside the euro area.

Euro deposits account for 76% of total savings and term bank deposits, 47% of kuna loans are pegged to the euro while countries of the euro area account for 53% of commodity exports and 59% of commodity imports, he said.

Plenković recalled that last week the government said that it foresees a GDP growth of 3% this year and a budget deficit of 2.8% of GDP, to fall to 1.6% in 2023 and 1.2% in 2024. At the same time, public debt should also be reduced to 76.2% this year, 71.7% in 2023, 68.9% in 2024 and 66.9% in 2025.

"All this has to be viewed in the context of changed circumstances and growing energy prices, which impacts all processes," said Plenković, recalling last week's estimate of a 7.8% inflation rate this year.

He stressed that nine measures in four areas had been met as part of the action plan to participate in the European Exchange Rate Mechanism II (ERM II). They are related to preventing money laundering, a more favourable business environment, improved management of state-owned companies and strengthening the bankruptcy framework.

We believe that this comprehensive approach will make it possible for all key and final decisions about Croatia's accession to the euro area to be made at the EU and euro area levels in June and July, said Plenković.

For more, make sure to check out our dedicated politics section.

May the 4th, 2022 - If Croatian inflation continues and becomes worse, posing more issues for the pockets of the country's already struggling residents following coronavirus-induced lockdowns and restrictions, just what does the government have up its sleeve to combat it? Finance Minister Zdravko Maric has claimed that there is still ''munition'' to be released in this sense.

As Poslovni Dnevnik writes, Finance Minister Zdravko Maric also answered the question as to whether the Croatian inflation rate will end up reaching double-digit figures: "I wouldn't go that far. Lithuania, Latvia, Estonia, the Netherlands and the Czech Republic all recorded double-digit rates back in March. Some of them even nearly 16 percent. Croatia hasn't done so yet,'' he said.

Maric spoke on Dnevnik Nova TV about problematic fuel prices, the situation on the gas market, Croatian inflation, the impact the current situation is having on the Eurozone, which Croatia is on schedule to join in 2023, as well as the current state of the Croatian budget.

Minister Maric first commented on whether the acceleration of Croatian inflation is going to continue to pose a very serious threat to the country because of everything that is unfolding globally, with the ongoing Ukraine war included.

"According to the latest projections, the average rate this year is 7.8 percent. Considering that the last published data said it would be 7.3, and before that the inflation rates were slightly lower, unfortunately my answer to your question is yes," he stated, before going on to discuss the aforementioned topic of potential of double-digit Croatian inflation.

Inflation has suddenly become a key variable on Croatia's path to the Eurozone, which it is due to enter early next year.

"We've been talking about the budget for years, and in the end, neither the public debt nor the budget deficit is a topic. Croatia has been exactly between the Eurozone and the EU average for the last 12 months," he said.

"In the middle of this month, we'll have the data for April, both for Croatia and for all EU countries. This will be the last input that enters the convergence report. At the beginning of June, the European Central Bank and the European Commission will publish this report separately. I really believe we'll get a positive outcome. The official decision should come in early July,'' added the minister. He also said that he wasn't in favour of delaying Croatia's entry into the Eurozone, which some are calling for owing to this dire situation. He believes that the Eurozone shows the best benefits during times of crisis. VAT for certain product categories was planned to be reduced when Croatia switches to the Euro, but the government slashed it beforehand anyway.

"If necessary, we have more ammunition to help people out in this situation," said the minister, before speaking about the healthcare system and whether he sees any room for much needed reforms there."Drugstores write to us periodically, both to my colleague Health Minister Vili Beros and to me. We have a fair relationship. Unfortunately, the payment deadlines for both hospitals and pharmacies have risen again. They've reached a level of over 180 days, and for some hospitals, that level is now over 200 days,'' said the Minister, and when asked how much the healthcare system's debt is and whether he knows how many ''holes'' there are when it comes to that, he answered: ''Unfortunately, I do know because every month that hole increases, meaning obligations grow, and it's been between 400 and 500 million over the last few months.'' he stated.

For more on Croatian inflation, make sure to check out our dedicated politics section.

April the 29th, 2022 - The Croatian inflation wave is currently three times higher than initial government predictions ever thought it would be, which is of course an enormous cause for concern for the vast majority.

As Poslovni Dnevnik/Jadranka Dozan writes, the recently updated macroeconomic projections for this year, presented by the government within the new Convergence Programme, once again did well in confirming just how much various economic forecasts have had their "shelf lives" very much shortened in the face of Croatian inflation.

This is most drastically shown in the revised estimate of the average Croatian inflation rate. The last official projection from the government, made back during the time of the adoption of the state budget for the year 2022, is barely half a year old, and compared to the then projected 2.6 percent, the expected Croatian inflation rate is now three times higher.

To be more precise, the government is currently counting on a rise in consumer prices of as much as 7.8 percent, proving to be much more cautious than the Croatian National Bank has been. The CNB's recently released new forecast of average inflation of 5.4 percent now seems actually quite optimistic.

The war in Ukraine, accompanied by additional supply chain disruptions and the ongoing energy crisis, has intensified inflationary pressures, affecting the prices of energy, transport, food, but also a number of other raw materials and industrial goods.

From next year on, inflation is thankfully expected to slow down, but having in mind the so-called the base effect of this year's large price increase, the projected slowdown to 3.7 percent next year and to 3.5 percent in 2024 certainly doesn't sound all that promising for anyone. As early as this autumn, in addition to lower price growth this year, rates of 2.3 and 2.2 percent have calculated for the first two years following Croatia's transition to the Eurozone.

Given the projections for growth in average gross wages (employees in legal entities), Croatian residents have at least two or three years of falling standards ahead of them, although government projections suggest that a slight recovery in terms of real income could finally begin next year.

According to the calculations from the Ministry of Finance, gross wages are expected to grow by an average of 6.3 percent this year (compared to a 7.8 percent rise in prices). In the first year, the euro should grow by an average of 3.8 percent or slightly above the Croatian inflation rate, and in 2024 by about 3.5 percent, which is one percentage point more than the expected price growth.

A minor surprise came from the government's revision of expected economic growth, although it is currently proving more conservative than the central bank. Instead of growth at the rate of 4.4 percent, which was estimated at GDP growth last autumn, expectations have been reduced down to three percent in real terms this year, with an acceleration forecast of 4.4 percent next year.

With the traditionally significant contribution of personal consumption in the structure of the nation's overall GDP, it remains to be noted that expectations of consumption growth compared to the original projections for this year decreased from 3.2 down to a mere 1.4 percent.

At the same time, following a package of anti-inflation economic measures, estimated at almost five billion kuna, then increased material and costs for Ukrainian refugees, and finally this week's agreement with the unions of state and public services, government spending is expected to grow more than planned for in the state budget. Instead of the then projection of just over two percent, it now counts on a 3.3 percent increase in government spending.

Although the projected growth rate of investment has now been halved (from 12 down to 5.8 percent) this year, over the next few years, public and private sector investment should be the main drivers of growth. Their contribution to Croatian GDP growth this year, at least according to the Ministry of Finance, is estimated to stand at 1.2 percentage points.

Individually, however, following the expectation of 7 percent growth in terms of the exports of goods and services (slightly less than 5 percent for goods and more than nine percent for services), the contribution of exports to Croatia's GDP should be significantly higher than that of investment (about 3.5 percentage points). However, given the rather high import dependence of the Croatian economy, Finance Minister Zdravko Maric explained that "the net contribution of net exports will be slightly positive this year, and slightly negative or neutral over the next three".

For more on Croatian inflation, check out our dedicated politics section.

ZAGREB, 27 April 2022 - Income tax refunds for 2021 will be paid as of 2 May and 664,000 citizens will receive HRK 1.7 billion in total, while 91,000 citizens have to pay HRK 316 million into the state budget in due taxes, Finance Minister Zdravko Marić said on Wednesday.

Speaking to the press, he said 146,000 of those eligible for a refund were young people and that they would receive HRK 640 million in total.

Marić said the 7.8% inflation the government forecast for this year was the highest in Croatia's recent history.

Earlier today, the government adopted Croatia's convergence programme for 2023-25, which will be sent to Brussels for assessment and is relevant for Croatia's euro area accession.

Marić expects certain information and reports in late May or early Junefrom the European Commission and the European Central Bank, to be followed by the testing of the Maastricht criteria.

He said the inflation growth was not expected to threaten Croatia's accession to the euro area.

Asked if there would be additional anti-inflation measures, Marić said the government was monitoring developments and that action would be taken if necessary and in line with possibilities.

He called on all other actors to stand united so that the slashed VAT rates could have the desired effects in terms of more favourable prices for citizens.

Marić said the current inflationary pressures were much higher than those which might occur with the introduction of the euro. For seven countries which introduced the euro, the effect on inflation was 0.2 to 0.4 percentage points in the first year and it was a one-time effect, he added.

Marić said such increases should not be ignored, so before and after the euro was introduced, prices would be shown in both currencies for a while so that they were not raised without justification.

Asked if the budget deficit forecast for this year, of HRK 13.36 billion or 2.8% of GDP, included additional funds for debts in the health sector, he said some funds would be ensured for that in a budget revision.

He said the revision had not been drawn up yet and that it could be passed in mid-May.

The minister said representatives of drug wholesalers regularly informed him and the minister of health about the debts. "Unfortunately, these debts keep increasing," he said, adding that the health minister and his associates are working on a health reform expected to curb the constant debt growth.

Marić also commented on a Finance Ministry bill that would allow the State Prosecutor's Office, the police, and the customs and tax authorities to access corporate and citizens' bank accounts.

According to the ministry, the bill incorporates the latest EU directive against money laundering, tax evasion and other forms of financial crime.

Marić said that, under the bill, the State Prosecutor's Office and the Interior Ministry first and foremost would have access to the accounts register run by the Financial Agency.

That does not mean they will have access to the amount in the account or transactions, only to basic personal information on the holder, he added, dismissing media claims that the law would give every clerk access to anyone's account.

For more, check out our politics section.

April the 19th, 2022 - The Croatian Finance Ministry has proposed a new bill (law) in which multiple state institutions would be able to see into the bank accounts of those who hold them in the Republic of Croatia, which would come as an overstep of a boundary for many.

As Poslovni Dnevnik writes, the Croatian Finance Ministry has submitted a legal proposal for public discussion, which would give access to the register of the bank accounts held by both companies and regular people in Croatian banks to the State Attorney's Office, Customs, Police and Tax Administration, in addition to the Office for the Prevention of Money Laundering, Jutarnji list reports.

This is a bill to facilitate the use of financial and other information for the purpose of preventing, detecting, investigating or prosecuting serious crimes, which includes the identification, monitoring and freezing of assets related to these crimes. According to the Croatian Finance Ministry, this proposal would incorporate the latest European Union (EU) Directive on the prevention of money laundering, tax evasion and other forms of financial crime into Croatian national legislation.

Something known as the Single Registry of Accounts (Croatian: Jedinstveni registar racuna/JRR) was established as a central registry of bank accounts way back in 2002 and is maintained by the Financial Agency (Fina) in this country. In addition to keeping hold of the data about the owners of various different bank accounts, it also contains data on payment accounts, savings and deposit agreements held with credit unions and more.

Since back in 2011, the aforementioned register also includes data on consumer accounts opened with banks operating here in the Republic of Croatia. The register, however, does not contain information on the balance of these bank accounts, which is important to note given the apparent invasion of privacy this may look like to many people.

For more, check out our politics section.