RBA: General government debt will reach 90 percent of GDP by the end of the year

According to the latest data from the Croatian National Bank (HNB), at the end of the second quarter of this year, the general government debt amounted to 283 billion kuna or 85.7 percent of the estimated GDP for 2015, and RBA analysts estimate that it will reach 90 percent of GDP by the end of the year.

Following the generous March issuance of Croatian eurobonds amounting to 1.5 billion euros, a decline in total public debt has been observed for the third consecutive month, which was 2.3 billion kuna or 0.8 percent lower at the end of June compared to May, as noted in the analyses of Raiffeisenbank Austria (RBA).

At the same time, on an annual basis, the general government debt, which includes the debt of the central government, social security funds, and local government, continues to show positive growth rates, being higher by 15.1 billion kuna or 5.6 percent compared to June last year, and by 3.4 billion kuna or 1.2 percent compared to December last year.
The monthly decline in public debt in June is largely due to the repayment of matured obligations of the state on domestic loans, thus in the observed month, the internal debt of the central government amounted to 159.4 billion kuna or 2.8 billion kuna less compared to May (a decline of 1.7 percent), RBA emphasizes. On an annual basis, it increased by 5.4 billion kuna or 3.5 percent, while compared to December last year, the internal debt of the central government is lower by 1.3 billion kuna or 0.8 percent.

In RBA’s analyses, it is stated that the external component of the central government’s debt in June increased by 507 million kuna or 0.4 percent month-on-month, reaching an amount of 118.5 billion kuna. In addition to the monthly growth, with an annual increase of 9.8 billion kuna or 9 percent, it has significantly contributed to the increase in total public debt on an annual basis. Also, compared to December last year, the external component of the public debt of the central government recorded an increase of 5.1 billion kuna or 4.5 percent. At the end of the second quarter, the debt of local units amounted to 5.3 billion kuna, recording a decline on a monthly and annual basis of 0.3 percent and 2 percent, respectively. Compared to December last year, the debt of local units is lower by 362 million kuna or 6.4 percent. Observing by borrowing instruments, at the end of June, about 158 billion kuna or 55.8 percent of public debt relates to state borrowing through long-term debt securities, while 103 billion kuna (36.4 percent) relates to state obligations on loans, RBA states. The remainder of 22.3 billion kuna (7.9 percent) relates to state obligations on short-term securities.

The total state guarantees at the end of June amounted to 6.9 billion kuna, reflecting their decline on a monthly and annual basis of 5.2 percent and 14.5 percent, respectively. More than 59 percent of total state guarantees relate to foreign guarantees (4 billion kuna), while domestic guarantees amounting to 2.8 billion kuna make up the remaining almost 41 percent of total state guarantees, as stated in RBA’s analysis.

– Considering the July issuance of kuna state bonds on the domestic market, we expect a new increase in public debt in the next reporting period, which, according to our expectations, will reach the level of 90 percent of GDP by the end of this year,” emphasize RBA analysts. They also note that “negative risks to the level of public debt remain weak fiscal consolidation along with the postponement of structural reforms, as well as a potentially larger budget deficit in an election year.