October the 23rd, 2021 - Finance Minister Zdravko Maric has spoken out about rebalances, projections for the future, stability and of course, the topic on the lips of most - Croatian Eurozone entry, which is edging ever closer.

As Poslovni Dnevnik/Ana Blaskovic writes, at the end of this year or at the very beginning of 2022, the situation in the Republic of Croatia should return to pre-crisis levels. This is of course good news for the domestic economy with the perspective of Eurozone entry in 2023, but this generally optimistic picture is still being threatened by numerous risks, from poor vaccination levels to so-called ''bubbles'' on the Croatian real estate market. These matters could be heard being discussed at the conference of the Zagreb Stock Exchange and pension funds entitled "The Challenge of Change/Izazov promjene".

Finance Minister Zdravko Maric announced that he would step out next week with a rebalance and a few new projections.

"At the end of this year, or at the beginning of next year, we should reach pre-pandemic figures," he assured. The Croatian Government will also refresh its fiscal expectations for the next three years, which will be marked by the implementation of the National Recovery and Resilience Plan, the effects of which should boost GDP by 1.5 percentage points on average.

818 million euros have been pumped into Croatia so far, and the new cash injections will depend on the fulfillment of 34 different criteria by the end of the year. If they're met, the government will submit a report to the European Commission (EC) in January or February, and then "we can expect a new payment in May or June."

In terms of Eurozone accession, Finance Minister Zdravko Maric says, everything is currently going according to plan. Interest rates and the exchange rate aren't in question, but inflation is a new fear. "Inflation is a priority for us because of society, the economy and of course because of people, but we should also look at it through Maastricht, even though Croatia is at the EU average. According to these projections, we should satisfy that as well. The real date of joining the Eurozone is 2023, I see no reason as to why we won't manage to meet the criteria,'' said Maric.

The introduction of the euro as Croatia's official currency could reduce the risk premium by two levels and thus partially amortise the possible growth of interest rates, which has been a current topic lately.

Croatian National Bank (CNB) Governor Boris Vujcic, on the other hand, expects a quick recovery "in the shape of the letter V", for 2021 in the form of GDP growth of 8.5 percent, and then of 4.1 percent. He noted that inflation is a consequence of supply disruptions, making it somewhat difficult for ordinary monetary tools to address it.

"Raising the reference interest rates over the next two years isn't going to significantly affect the price of oil and gas, which make up half of inflation," said Vujcic. He underlined that the current figures (3.5 percent in September, op.a.) are historically low, but that we have become accustomed to a long period of low inflation, which has in fact been too low.

"This year we expect an inflation rate of 2.3 percent, which isn't worrying, it's actually very close to the goal of monetary policy and it will calm down slightly next year,'' he assured.

Risks in the macro environment...

In addition to energy, the CNB sees numerous risks in the macro environment in the form of the slower cleaning of the market from bad companies and the creation of a real estate bubble, among other things. Prices are also being pushed by foreigners buying properties, especially on the coast.

“The availability of property has started to deteriorate, loan installments in relation to disposable income are slowly growing. "If this trend continues, property purchasing becomes inaccessible to a part of the population with lower incomes, and this should be kept in mind because it's now also becoming a political problem," the governor warned.

Assessing the risks to financial stability, Hanfa's Ante Zigman briefly summed it up by saying that "it isn't exactly great, but it isn't terrible either".

“We’re not too worried about it all, but we’re on guard,” he said. In the second quarter, the risks were somewhat reduced, and for the third, in which inflation returned to the scene, there is no data to be looked into yet. There are a range of risks present; from investment concentration, labour market issues to, once again, the issue of real estate.

"Currently, there are high risks of valuation, the question is whether or not we have an overheated market. The risk of things falling due to high valuations is very possible ", warned the head of Hanfa. Labour Minister Josip Aladrovic out that there is reason for optimism at the end of the global coronavirus pandemic.

"We've never had closer cooperation between politics and economics. The government acted in a timely and adequate manner, we can say that we saved the economy. We're now going into the job creation phase,'' he said, announcing that a very important role is played by pension funds that manage 130 billion kuna.

“They need to invest in long-term sustainable investments, which will create pensions and increase them in the future. It's up to us to redefine the regulations in the direction of the diversification of investments and goals, which we'll do in the short term and in cooperation with those pension funds,'' he concluded.

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ZAGREB, 15 Oct 2021 - Independent member of parliament Karolina Vidović Krišto said on Friday she had collected signatures of 34 lawmakers for her initiative to launch a no-confidence vote in Finance Minister Zdravko Marić because he had stayed on a yacht owned by a private businessman this summer.

Vidović-Krišto said that she was glad that the initiative was supported by 34 MPs from different ideological groups.

"This is great news for citizens, as the MPs have overcome their partisan frameworks and are fighting for the common good, and that is the fight against corruption," she told a news conference in the parliament.

She said that when it came to the Opposition, only lawmakers from the We Can party and the Istrian Democratic Party (IDS) had not signed her petition.

Vidović Krišto accused Marić of serving "the interests of power centres" rather than working for the benefit of Croatian citizens.

The case of Marić staying on a yacht of a businessman grabbed the limelight in mid-August after some media outlets started speculating whether the minister's short travel on a private yacht constituted a conflict of interest.

The minister said then that the yacht was owned by his friend Blaž Pavičić and that Pavičić had not used any tax breaks or a loan from the Croatian development bank (HBOR) and that he had no tax debt written off during Marić's ministerial term.

During today's news conference, Vidović Krišto accused Marić of lying that the businessman concerned had no business deals with the Croatian state.

She criticised Prime Minister Andrej Plenković for his failure to sack Marić over this case, and accused the prime minister of ignoring the Croatian laws, obstructing the Croatian institutions and disenfranchising the Croatians.

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ZAGREB, 29 Sept, 2021 - Finance Minister Zdravko Marić told a press conference on Wednesday that the money from the National Recovery and Resilience Plan (NPOO) would be granted only to those that met all the criteria.

The European Commission on Tuesday disbursed €818 million to Croatia in a pre-financing payment under the Recovery and Resilience Facility (RFF), which is equivalent to 13% of the country's total financial allocation under the RRF.

Marić said that the government had agreed the pace of expenditure and implementation of reform and investment measures. He said he expected at least 50 projects to be prepared by the end of the year, adding that they concerned digital transformation and the transition to green transformation in the industrial sector. 

"Who will get these funds will depend on tenders and fulfilment of the criteria," the finance minister said.

He announced tenders for the construction of kindergartens and schools, and said that individual projects, such as development of autonomous vehicles by the Rimac company, were also important.

Before the end of this year or early next year, there will be additional tenders for the award of grants for energy efficiency and further green transformation, and some of the funds will also go towards post-earthquake reconstruction, he said.

Asked about the possibility of Croatia losing some of the money because of problems with public procurement, Marić said that public procurement must be efficient because "projects are subject to deadlines, and speed and efficiency are the key."

He noted that the Croatian public procurement law is the most complicated in the EU and needs amending.

Asked who can apply for NPOO funding, Marić said that in the context of the manufacturing industry those would be small and medium-sized businesses, notably those that would contribute to green and digital transformation.

"Funds will be disbursed to all those that fulfil the criteria and requirements," he said, adding that funds would also go towards development of the telecommunications network.

"This 13 percent of the allocation has now been paid, the next €700 million will be paid by the middle of next year and a further 700 million by the end of next year. We need to carry out 34 measures until the end of this year. Some have already been implemented, while some have certain risks," Marić said.

"The next tranche will depend on how many measures have been fulfilled. If we fulfil all 34 measures, €700 million will come in, and if we don't, there will be a certain correction to this amount," Marić concluded.

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ZAGREB, 26 Sept, 2021 - While Western countries are looking to attract highly skilled workers, Croatia has been importing unskilled labour, mostly single men who with their low wages cannot afford to live with their families, reads an article in the Večernji List daily edition of Sunday.

How many foreign workers should Croatia, being a small country, import to reach the average standard of living in the EU, so that all those who work today do not sink into poverty when they retire, says the daily.

What makes a state a state are its residents, with the standard of living being ensured by employed citizens and institutions that work for public welfare, while its future is ensured by its children and youth, says the daily.

In a period of only 30 years Croatia has lost close to one million residents, and according to demographers, today it has a population of only 3.85 million, with the share of citizens aged over 65 exceeding the share of children and young people under 19, which puts Croatia among the world's oldest nations.

With such a population structure, intensive emigration over the past eight years, and a brain-drain, Croatia cannot have stronger economic growth but has been keeping afloat with uncontrolled labour imports, hopeful that at least some of those who have emigrated will return so that all citizens could have a decent life, says the daily.

According to UN projections from 2015, Croatia's population was to have shrunk to 3.9 million only in 2030, but those projections have turned out to be optimistic, as the figure has been reached a decade earlier, the daily says.

Speaking at the recent conference "The Croatia We Need", Finance Minister Zdravko Marić said that raising the standard of living should be a goal for everyone and that between 100,000 and 150,000 new jobs would mean less worry and a much stronger and more sustainable growth with the help of which the average European standard of living would be achieved more easily.

But he did not say if he meant that the 100,000 to 150,000 workers should be imported or that some of the 119,000 domestic job-seekers should be activated as well, the daily says, noting that Croatia has 1.236 million pensioners and 1.604 million employed persons.

The government has not answered either if the minister was referring to labour imports and where those workers would be imported from, the daily says.

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ZAGREB, 22 Sept, 2021 - Inflation should be taken very seriously because of the criteria for introducing the euro as well as living standards, Finance Minister Zdravko Marić said on Croatian Radio on Wednesday.

Asked if inflation would threaten Croatia's entry into the eurozone, he said next year's budget deficit would again be within 3%, which would mean that the cost of COVID-19 of over HRK 35 billion would be almost totally a one-off.

The public debt-to-GDP ratio is again decreasing this year already, he added.

He said that inflation, one of the criteria for introducing the euro, had become a topic in recent months and that it must be a maximum 1.5% more or less than in the three member states with the lowest inflation.

Croatia's average inflation is somewhat below the EU average but Greece, Cyprus and Portugal still have very low inflation, which affects the formula for calculating the Maastricht criterion, he added.

But even with those three countries combined, he said, Croatia is still within the criteria for introducing the euro.

He said inflation was, first and foremost, affected by energy prices, oil in particular, and that this was reflected in food and construction material prices.

Speaking of fears of price rises after the introduction of the euro, Marić said that at least six months before it was announced that Croatia was entering the area, prices would have to be displayed in both kuna and euro for a year, perhaps longer.

Although the general VAT rate is not expected to be cut upon accession to the euro area, he did not rule out the possibility of cutting VAT on food.

Marić reiterated that Croatia would receive €25 billion from the EU budget in the next seven years, including €6.3 billion for its National Recovery and Resilience Plan, of which a 13% advance "is arriving in a matter of days."

Marić said he was surprised by the success of the tourism season, notably in July and August, but this month also as the amount of fiscalised receipts in tourism this month so far was up 24% from September 2019.

He announced a 2021 budget revision, alongside preparations for the 2022 budget, for mid-October.

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ZAGREB, 13 Sept 2021 - Finance Minister Zdravko Marić said on Monday that the introduction of the euro as the sole legal tender would impact Croatia's credit rating, and quoted the Fitch agency's presumption that the country's admission to the euro area would raise its credit rating by two notches.

Addressing a meeting of the National Council for the introduction of the Euro as Official Currency in Croatia, which was also attended by the EC Vice President Valdis Dombrovskis, Minister Marić recalled that the 2020 COVID-19 pandemic triggered off a rise in the budget gap, and last year the general government deficit amounted to 7.4% of the country's GDP.

This year, it is estimated at 3.8%.

According to the latest estimates, the budget deficit in 2022 will fall to 2.6% of GDP and to 1.9% in 2023, while in 2024 it is projected to be 1.5% of GDP.

Marić recalled that as a consequence of the higher budget deficit, the public debt also rose in 2020 when it reached 88% of GDP.

This year, the public debt is likely to fall by two percentage points to 86.6%, and in 2022, it is expected to be reduced by a further three percentage points.

Marić expects the public debt to be 76.8% of GDP at the end of 2024.

He announced a shift of the focus to inflation, noting that inflation trends were now present worldwide.

Croatian National Bank (HNB) Governor, Boris Vujčić, said that Croatia's admission to the European Exchange Rate Mechanism (ERM) II had brought the country under the Single Supervisory Mechanism (SSM) and it also joined the Single Resolution Mechanism (SRM).

Concerning the HNB, we are already in the bank union to a large extent. Our experience from participation in the SSM and SRM is good, we have adjusted ourselves to that, Vujčić said.

Commenting on fears of higher prices being triggered off by the euro changeover, the governor pledged the protection of consumers and good communication.

"We are preparing the code of ethics which will be offered to businesses and services to sign, whereby they undertake fair performance during the euro changeover, he explained.

We will introduce monitoring and we will use the best practices of countries that have already converted their national currencies to the euro, he said.

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ZAGREB, 8 Sept, 2021 - Finance Minister Zdravko Marić said on Wednesday a solution to current account overdrafts was expected in the days or weeks ahead and that it remained to be seen if the law would need to be amended.

He was speaking to the press after Prime Minister Andrej Plenković's meeting with representatives of banks' management boards, which was also attended by central bank (HNB) governor Boris Vujčić and Economy Minister Tomislav Ćorić.

Marić said the purpose of the meeting was to exchange information and views on current account overdrafts with a view to finding an adequate and satisfactory solution in which, he added, the government emphasised consumer protection.

He said several good proposals crystallised at the meeting, aimed at protecting social sensitivity, fairness, information and transparency as well as at reaching a solution under which authorised overdrafts would again dominate, as they are regulated by law in much more detail, much more clearly and transparently than tacit overdrafts.

The 2010 Consumer Credit Act recognises authorised and tacit overdrafts, but since 2018 the latter have become prevalent, accounting for almost 95% of all overdrafts, Marić said. Tacit overdrafts have been approved for almost 1.8 million consumers and are being exercised by 840,000.

That happened because under a central bank decision from the end of 2017, pursuant to European regulations, the calculation of the effective interest rate includes the fee for having a current account. As a result, authorised overdrafts became less available to lower income citizens and banks switched to tacit overdrafts.

Marić said a solution should be prompt but not rushed and to the benefit of all consumers. He told people living with tacit overdrafts that the government did not intend to nor would support a solution that would result in a drastic cancellation of overdrafts because that would put additional pressure on their everyday lives and livelihoods. "We'll dispel all fears that this instrument will be annulled and disappear."

A solution may be found by changing the decision within the central bank's remit, but if necessary, the law will be adjusted, he said, adding that if the former option was chosen, that would be known in the next few days, and in case of the latter, in the next few weeks. "We are really not talking about months."

The minister said it was necessary to continue to work on people's financial literacy as well as on product transparency.

Vujčić: The goal is that lowest income citizens don't lose current account overdraft option

The central bank governor said that since Croatia was the only country limiting effective interest rate on overdrafts, the inclusion of the current account fee in the rate as of 2018 resulted in the fee "swallowing" interest, primarily on small overdrafts.

He said that, for example, no interest was paid on overdrafts up to HRK 2,000 and a current account fee of HRK 12.

"We have several different regulations which produce such results and that should be put in order, so that for those with the lowest incomes, and consequently overdrafts, those products don't become unprofitable for banks and they start cancelling them."

Vujčić said the point was to return tacit overdrafts under the same regulations that applied to authorised overdrafts, without a certain number of people with the lowest incomes losing the overdraft option in the process.

"That's the point and that's what we'll do," he said, adding that it remained to be agreed on how to do it.

Croatian Banking Association (HUB) director Zdenko Adrović said that representatives of the banking sector spoke at the meeting about practices in other European countries, expressing hope that the new solution would be in line with those practices.

He stressed that there was no cap on the effective interest rate in other countries, so one of the proposals presented was for the cap on the effective interest rate to be removed and a cap on the nominal interest rate to be possibly introduced.

Adrović said that one of the proposals was for costs related to current account overdrafts to be calculated at "a slightly higher minimum amount", but noted that this was a technical solution that still had to be discussed with the HNB.

Asked by reporters how citizens would now be able to trust banks after they had switched their authorised overdrafts to tacit ones, Adrović claimed that everything was done in line with the law and that authorised and tacit overdrafts were two equal products.

He said that he "assumed" that a "vast majority" of citizens had been informed by their banks about tacit overdrafts, but that a large number of citizens, including himself, "relatively rarely" read notices about possible changes.

Marić: No reduction of VAT on food in 2022

Asked is VAT, including on food, would be lowered considering current price hikes, Finance Minister Marić said that the government had already reduced the VAT rate on some food products, including fresh meat and fish, and fruit and vegetables, and that it planned to reduce VAT on all food products during the current term in office.

But that will happen only after the necessary conditions are met, he stressed, noting that currently and in 2022 there was no fiscal room for such a move.

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ZAGREB, 2 Sept 2021 - The latest macroeconomic trends indicate the upward revision of forecasts of the growth for this year and we now can expect a 7% rise on the year, Finance Minister Zdravko Marić said on Thursday.

He recalled that the government's current forecast is five percent.

Marić said that tax revenue from 1 January to 31 August was 0.7% higher than fin the corresponding period last year while VAT was over four percent more year on year.

YTD profit tax is a little lower as against the same period last year, but that was to be expected given that that is calculated based on the results in 2020. Contributions for pension insurance were 4% higher and that is on track with what we expected, he said.

The only levy that is mildly staggering is for automobiles which he explained by the reduction in some levies and global stagnation in the automobile industry.

As far as budget revenue is concerned, in August alone the value of fiscalised receipts was almost 21% higher than they were in August 2020.

He underscored a key role of the expenditure side for the sustainability of public finances.

Asked by the press about possible inflation in autumn particularly regarding food prices, Marić said that the latest data calls for caution.

According to the latest information from the national statistical office (DZS), inflation in July amounted to 2.8% on the year, the highest rate since April 2013. Consumer prices are fuelled by industrial producer prices which in July rose by 7.9% on the year, the biggest jump since April 2011.

Marić said that inflation was to be expected given monetary concessions on the global level and the amount of money released in the system which resulted in a drop in its price which then impacted inflation pressure.

He added that he isn't sure that the price hike on food and construction material can be entirely attributed to global trends and disruptions in the supply chain.

He warned there are very few prices that can be regulated as they are mostly regulated by the market and that market development and competitiveness are a must.

He recalled that when VAT was reduced on eggs, fresh meat, fish, fruit, and vegetables, tax policies had a limited impact because even after VAT was reduced the price of these products did not decrease significantly.

He mentioned the recurring rise in the debt by hospitals and that payment deadlines are now about 180 days for hospitals, 200 days for pharmacies and that the health insurance fund had transferred about HRK 5.9 billion to settle liabilities.

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ZAGREB, 27 Aug 2021 - Finance Minister Zdravko Marić said on Friday that he could be pleased with the state of the budget and that it was in line with expectations, with some tax revenues exceeding them, such as VAT, which outperforms its 2019 level since the beginning of the year.

As the level of employment has been preserved, and even increased, Marić is also pleased with the amount of paid contributions for pension insurance.

He underscored again that the key to the sustainability of public finance lay on state budget expenditures, on which great emphasis was placed.

Asked by the press whether the government had a clear reform plan on the table, for instance, for health care, which is a great burden on the budget, the finance minister recalled the National Recovery and Resilience Plan (NPOO) had been adopted and it listed reforms in various segments.

The health care reform, Marić said, should go beyond what is written in the NPOO, because that is a more comprehensive process which everyone knows is needed, Health Minister Vili Beroš is working on it, and the entire package of measures should be presented to the public by the end of the year.

Asked about job-retention grants for entrepreneurs, Marić recalled there were conditions for those grants, such as a drop in revenue, so those grants were not crucial for a significant part of businesses. However, he added that one always had to be braced for any negative surprises.

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August the 16th, 2021 - Finance Minister Zdravko Maric has referred to the current quite remarkable numbers we're seeing coming from the Croatian tourism sector as strong. Few expected a summer season as successful as this one so far.

As Poslovni Dnevnik writes, Maric stated that the first twelve days of August, Croatia has recorded 10 billion kuna worth of fiscalised receipts/bills, which is 12.5 percent more than in the same period in pre-pandemic, record 2019.

''Since the beginning of the year, we're 1.3 percent better than we were even back in 2019. Let's carry on and do everything we can to continue these trends. We need to focus more on the cost side of the budget, because revenues, obviously, aren't going to fail. The key to our success in the long-term sustainability of public finances lies in expenditures,'' Finance Minister Zdravko Maric told Jutarnji list.

The Croatian tourist season, given the ongoing coronavirus pandemic, is unexpectedly good and is somehow breaking the records even from 2019. According to the Tax Administration, the increase in the total amount of fiscal bills and receipts issued in the first week of August seems to be due to rising prices, especially in the provision of accommodation and food services.

In the first statistical week of August, the number of receipts issued decreased by 13 percent compared to the same week of the record year 2019, but the total amount of fiscal receipts increased by 23 percent. A slightly lower decrease in the number of fiscal receipts issued compared to the first week of August 2021 and 2019 was also observed when they were issued for all activities - this decrease currently stands at just 4 percent.

“Of the activities within the fiscal system, we're mostly monitoring retail trade and tourism. Compared to 2019, trade is 6 to 8 percent better, depending on whether we look at trade in total or just retail, and total tourism is currently in the red by 21.5 percent. That said, in July, tourism was 5 percent better than it was back in July 2019, and in the first 12 days of August, it's as much as 20.4 percent better. Of course, it would be more correct to wait until the end of the month and compare ''the same with the same'', but these are also very strong figures for August,'' concluded Finance Minister Zdravko Maric.

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