Marić expects economic growth of two percent, but we face the ‘snowball effect’

Finance Minister Zdravko Marić stated on Saturday that he expects economic growth of around 2 percent this year, but that there are negative risks to these estimates, primarily due to foreign factors.

– “Our macroeconomic guidelines do not significantly deviate from the recently published EU projections,” said Marić in an interview with Jutarnji list.

The European Commission recently raised its estimate for the growth of the Croatian economy this year to 2.1 percent, up from the previous 1.4 percent. However, Marić warns that “primarily due to foreign factors, risks on the negative side of expectations prevail, among which are the slowdown in growth of the Chinese and American economies, possible interest rate increases in the U.S., and worryingly low oil and raw material prices… In such a situation, he says, the sustainability of public debt is one of the main challenges, where three pillars of adjustment must be considered. The first is fiscal consolidation, i.e., reducing the budget deficit to a sustainable level. The second pillar is the activation of state assets to reduce nominal debt, while the third pillar is strengthening economic activity.

Croatia faces the so-called ‘snowball effect’, or a situation where the cost of financing debts exceeds the nominal growth of gross domestic product (GDP).

– “To cover this difference, the state must maintain a primary surplus, i.e., a deficit reduced by interest, in order to stabilize public debt… We cumulatively need 13 billion kuna in primary surplus over three years,” says Marić.

He emphasizes the risks to public debt if interest rates on global financial markets rise.

– “In the case of an interest rate increase of 1 percentage point, from 4.3 percent that we currently pay, by 2020 we would have to allocate double the amount compared to the 12 billion we currently pay, or another 12 billion kuna,” emphasizes the finance minister.

For this reason, he says, fiscal consolidation is important, and the goal is to achieve a budget deficit of 3 percent of GDP this year. Budget revenues would be planned realistically-conservatively, while expenditures would be influenced by rationalization, efficiency, and savings.

– “For all budget users, we will find savings and increase the efficiency of public money usage,” says Marić, adding that in the area of social policy, further linking of various benefits to the so-called property census will be implemented.

– “We can link the entire spectrum of benefits to the property census, and this will already be seen in this budget,” emphasized Marić, adding that he believes he will find fiscal space for the promised payment of 1,000 euros for newborns.

He expects savings in the wage mass in the public sector.

– “When we slightly analyze the structure of the total wage mass, we see that the base salary is not the problem. There are about three hundred various allowances that make the system overly complex… We want to value equal work equally,” emphasizes Marić.

In the interview, he also stated that there will be neither freezing nor abolishing pension funds, which manage assets exceeding 70 billion kuna.

– “We want a more active role for pension funds, greater participation, but also something that will bring higher returns for both them and their insured parties.”

He also warned that the budget this year will lose about 700 million kuna in income from profit tax because banks are at a loss due to the conversion of loans from Swiss francs to euros.

– “Just as I was ready to talk to the Franak Association, I am ready to talk to bank representatives to find solutions for the entire issue. At the very least, we need to reopen dialogue,” says Marić.

He also pointed out that at the level of the state budget, excluding HAC and other off-budget users, about 17 billion kuna is due for payment this year.

– “This year we must restructure existing due payments with new debt, so it is certain that we will be active in capital markets, both domestically and abroad,” concluded Marić.