Gross foreign debt of 45.5 billion euros, 103.7 percent of GDP

According to the latest data from the Croatian National Bank (HNB), Croatia’s gross foreign debt at the end of December 2015 amounted to 45.5 billion euros or 103.7 percent of GDP, 4.7 percentage points lower than a year earlier, as stated in a new analysis by Raiffeisenbank Austria (RBA).

“Thus, for the first time since April 2014, an annual decline in gross foreign debt was recorded, by 1.1 billion euros, or 2.4 percent year-on-year, which is primarily the result of significant deleveraging by credit institutions that intensified notably in the second half of last year,” the RBA analysis published on Tuesday states.

At the end of 2015, the gross foreign debt of other monetary financial institutions amounted to 6.1 billion euros, which is more than 2 billion euros less compared to the same month in 2014 and represents a year-on-year decline of almost 25 percent.

At the same time, the reduction of external debt of credit institutions by 817 million euros, or 11.8 percent, compared to November of last year significantly contributed to the overall monthly reduction of gross foreign debt by 1.7 billion euros or 3.5 percent, the RBA analysis states.

“On the other hand, the central bank increased its foreign liabilities (due to reserve investments in repo agreements), recording a strong annual growth of 1.2 billion euros,” RBA analysts emphasize.

According to HNB data, in the same direction, unfavorable exchange rate changes and other adjustments of 1 billion euros also acted to increase the value of total foreign liabilities, of which the largest part relates to the government sector.

According to the latest data, the foreign debt of the general government sector at the end of 2015 reached 15.9 billion euros, accounting for almost 35 percent of total gross foreign debt.

“Although it recorded a monthly decline of 204 million euros or 1.3 percent, compared to the end of 2014, the gross foreign debt of the general government increased by 498 million euros, or 3.2 percent,” RBA analysts state.

Broadly speaking, the total gross foreign indebtedness of the public sector, which also includes the external debt of public non-financial corporations, amounted to 19.5 billion euros at the end of 2015, accounting for almost 43 percent of total gross foreign debt of Croatia.

“Thus, observing from a broader perspective, the foreign debt of the public sector at the end of last year recorded a strong annual growth of 1.7 billion euros, or 9.7 percent,” the analysis states.

On the other hand, the debt of the private sector decreased at the end of 2015 to 25.9 billion euros, representing a monthly decline of 1.2 billion euros, or 4.4 percent, primarily as a result of deleveraging in the financial sector.

As a result, the debt of the private sector also recorded a relatively significant year-on-year decline of 2.9 billion euros, or 10.1 percent.

However, in 2015, the trend of increasing foreign indebtedness of private non-financial enterprises continued, with their debt reaching 11.7 billion euros, which is a year-on-year increase of 4.7 percent.

“Given the abundant foreign liquidity and more favorable financing conditions, further stimulated by the European Central Bank’s monetary easing policy, we expect the continuation of borrowing by domestic companies with higher credit ratings in foreign financial markets during 2016,” RBA analysts conclude.