‘We will try to define a fiscal rule with the IMF’

The government has begun discussions with representatives of the International Monetary Fund (IMF) regarding the modification of the fiscal rule that Croatia finds very difficult to meet due to a five-year recession, stated Finance Minister Slavko Linić after today’s meeting with IMF Deputy Managing Director Nemat Shafik at the Banski Dvori.

“We have started discussions with the IMF to work together with their fiscal office to improve the model of the fiscal rule in Croatia, taking into account the five-year recession and the quite severe cuts in expenditures last year,” Linić told reporters.

Croatia is aware that rules must be respected; we are only talking about the inadequacy of our fiscal rule to the conditions of recession and we want the institution that knows fiscal rules worldwide to help us find a better model,” Linić emphasized.

The fiscal rule requires that total expenditures of the general budget, as a share of GDP, be reduced by at least one percentage point annually.

When there is no economic growth, reducing expenditures by one percent over time causes more harm than good. It is evident that this is resolved differently and more effectively in Europe, as it must take into account the problems caused by the restructuring of certain companies and economic sectors, and in that regard, find formulas that will ease the situation, the finance minister pointed out.

At today’s meeting, there was no discussion about a possible arrangement with the IMF as this is not currently necessary for Croatia. The government can request an arrangement if it encounters problems in managing public debt, but since we do not have any particular difficulties in servicing debts, we are not yet considering an arrangement with the IMF,” Linić said.

Nemat Shafik is in Croatia as part of her visit to the countries she is responsible for, intending to meet with representatives of the executive branch, the central bank, trade unions, and employers. Thus, during her visit to Croatia today, she is talking with representatives of the government, the Croatian National Bank, the banking sector, trade unions, and employers to see if there is consensus on the model of consolidation for Croatia and to assess the government’s programs for fiscal consolidation, the potential for development, and control of public debt.

Linić proudly stated that the government managed to reduce the budget deficit from over 5 percent to 3 percent of GDP last year, regardless of the economic downturn, and keep public finances under control.

In response to a journalist’s question about resolving the privatization issues of shipyards, Linić expressed confidence that contracts for all three shipyards – Brodosplit, 3. maj, and Brodotrogir – would be signed before the end of May.

The proposal for a contract under which DIV wants to purchase Brodosplit was made in accordance with the memoranda and contracts signed with the European Commission back in 2009, so we do not expect a negative response from the European Commission. We expect that after the successful privatization of Uljanik in February, we will reach a proposal for a contract with 3. maj, and negotiations regarding Brodotrogir are also intensifying,” said the finance minister.