Croatian Public Debt Falls on a Quarterly Basis for the First Time Since Late 2012

At the end of the second quarter, Croatian public debt amounted to 85.7% of GDP, which is 2 percentage points lower than in the previous quarter and represents the first decline in debt on a quarterly basis since the end of 2012.

According to the report published today by Eurostat, Croatia’s public debt at the end of June was 283 billion kuna, which is 5.5 billion less than at the end of the first quarter. The share of the general government debt in GDP fell from 87.7%, which it was at the end of the first quarter, to 85.7%. In this regard, Croatia ranked among the top three EU member states, highlighted the European statistical office in the report. Only Ireland, with a decline of 2.6 percentage points, and the Netherlands, with a decline of 2.2 percentage points, recorded a larger decrease in public debt on a quarterly basis.

This is the first decline in public debt on a quarterly basis since the third quarter of 2012, when it fell to 223.7 billion kuna, down from 224.8 billion three months earlier, according to data from the Croatian National Bank.

– The decline in public debt on a quarterly basis is not surprising as the state repaid part of the loans in June. However, in July, it issued new bonds in kuna, so an increase in debt is expected in the third quarter, says Alen Kovač, a macroeconomist at Erste Bank.

While it fell on a quarterly basis, Croatian public debt increased by 15.1 billion kuna on an annual basis, raising its share in GDP by 4 percentage points, from 81.7% at the end of the second quarter last year. By this indicator, Croatia ranked among the EU member states with the highest growth in the share of public debt in GDP, noted Eurostat. Ahead of Croatia are only Bulgaria, with an increase of 8.1 percentage points, and Austria, with an increase of 4.2 percentage points.

Kovač expects public debt to rise by the end of the year.

– I expect that the budget deficit this year will be slightly above 5% of GDP or around 16 billion kuna, so it is clear that there is no significant consolidation compared to 2014. We estimate that public debt will approach the level of 90% of GDP by the end of the year, says Kovač. He also emphasizes that further estimates of public debt depend on the budget for 2016.

– This trend continues to suggest that the fiscal part of the story is potentially the riskiest from a macroeconomic perspective. As Croatia is in the excessive deficit procedure, it is expected that the pressure from the European Commission will intensify in the next year or two to move towards consolidating the budget deficit, concludes Kovač.

The Eurostat report also shows that Croatia is following trends in the EU, where public debt on a quarterly basis has fallen on average, while it has increased on an annual basis. Namely, in the 28 EU member states at the end of the second quarter, the average share of public debt slipped to 87.8% of GDP, down from 88.1% in the previous quarter. However, this is still higher than it was at the end of the second quarter last year, when it amounted to 87.3% of GDP.