Pensioners Can Secure Less Than 50 Percent of Funds for Pensions

Croatia will not be able to reduce its budget deficit within the limits of the European Union before 2016, and it will need more time to start reducing public debt, said Finance Minister Slavko Linić in an interview with Reuters.

Linić stated that the government is ready to accelerate the pace of reforms this year and next, but that Croatia’s structural problems are too deep to be resolved quickly.

“We will certainly be able to reduce the budget deficit below 3 percent of GDP in 2016, but we will need a few more years to address structural problems, especially in the pension system and public debt,” Linić said on Tuesday to Reuters.

“Our pension funds can secure less than 50 percent of the funds needed for pension payments. This is our biggest structural problem and cannot be solved overnight,” he added.

The public sector debt currently reaches 54 percent of GDP, and it is expected to rise to 57 to 58 percent in the coming months, when the government will consolidate debts in healthcare and shipbuilding. With further borrowing by the state, public debt could exceed 60 percent of GDP, which is the tolerance level in the EU.

Linić is aware of the possibility that Croatia may fall under special budgetary supervision from Brussels.

The European Commission indicated earlier this month that Croatia could enter a disciplinary procedure for excessive deficit (EDP) soon after joining the Union due to breaching the EU’s set limit of 3 percent of GDP regarding the budget deficit.

EDP involves steps that would encourage countries to improve their financial situation, and non-compliance could lead to financial sanctions, such as the suspension of European Union funds.

Linić still expects that the Croatian economy will grow by 0.7 percent this year, although most analysts expect a decline in gross domestic product for the fifth consecutive year.

“The growth forecast for this year remains at 0.7 percent. Next year, we need growth of 1.5 to 2 percent, and I think that is achievable,” Linić said, adding that he bases this forecast on the expected increase in investments from the public and private sectors and efforts to clear overdue unpaid debts that are choking the economy.

Unlike the Governor of the Croatian National Bank, Boris Vujčić, who said last week in London that Croatia will strive to join the eurozone as soon as possible, Linić says that a fast track to introducing the euro is unlikely.

“We will need four to five years to meet the Maastricht criteria; only then can we think about the euro and joining the eurozone. However, it is important to keep the deficit under control so that it does not affect our ability to draw money from EU funds,” Linić said.

“Next year, we will have guidelines from the Commission on what needs to be done. It will not be easy for us, nor for many other EU members with a deficit above three percent. Preparing the budget for next year will not be easy,” Linić said.

He emphasized that this year’s targeted budget deficit of 3.4 percent will be met. This amounts to 10.2 billion kuna, and the Ministry of Finance plans to enter the local market in July, after borrowing 1.5 billion dollars in international markets in April.

“We have not yet defined the total value of the bond issuance in July, but this will be our last borrowing this year. There is no need for a budget revision, and we will firmly stick to our targeted deficits,” Linić said, adding that Croatia will not need an agreement with the International Monetary Fund to maintain the stability of public finances.