RBA: At the end of the second quarter, public debt is 81.9 percent of GDP

At the end of June, Croatia’s public debt amounted to 287.3 billion kuna, or 81.9 percent of gross domestic product (GDP), with the debt being lower by 1.8 billion kuna compared to the end of last year, according to an analysis by Raiffeisenbank Austria (RBA).

The decline in public debt since the beginning of the year is “the result of very favorable developments in budget statistics, which recorded a slight surplus in the first half of the year,” emphasize RBA analysts.

They add that during this period, the share of public debt in GDP decreased by 1.8 percentage points, which, in addition to the absolute reduction of the state’s obligations, is also attributed to the continued growth of the economy. However, compared to the end of the second quarter of last year, public debt increased by 1.6 billion kuna or 0.6 percent.

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RBA analysts explain that this reflects the growth of the domestic component of public debt, which reached 183.6 billion kuna at the end of June this year, which is 9.2 billion or 5.3 percent more than in the same period last year.

During the same period, the foreign component of public debt decreased by 7.5 billion kuna or 6.7 percent, to approximately 104 billion kuna.

Thus, the share of the domestic component of public debt in total debt increased to 63.9 percent at the end of June, while in the same period last year it was 61.1 percent.

“The growth of the domestic component of public debt was supported by high liquidity and relatively favorable borrowing conditions in the domestic market, backed by an expansive monetary policy,” explain RBA analysts, adding that this resulted in a reduction of the country’s external vulnerability to movements in foreign markets.

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They also state that, despite relative improvements in public debt movements, high debt servicing costs will continue to exert pressure on public finances in the upcoming period.

“Utilizing the period of favorable economic developments as an opportunity to achieve budget surpluses and reduce public debt would create a broader space for counter-cyclical action during negative economic developments,” RBA analysts emphasize.

However, they believe that under conditions of economic growth and solid inflows into the budget, the general government deficit in 2017 could be lower than initial projections, remaining around 1 percent of GDP.

“Consequently, Croatia should record a decrease in the share of public debt in GDP, along with a solid primary surplus,” concludes the RBA analysis.