Croatia will continue to implement structural reforms and fiscal discipline after the budget surplus in 2017 in order to accelerate economic growth, raise its credit rating, and improve prospects for access to the Eurozone, said Finance Minister Zdravko Marić in an interview with Reuters on Wednesday.
– The budget data for 2017 will be published on Friday, and we can expect a general government surplus for the first time since we started applying the European Union methodology. This is a result of our efforts to limit spending and to use higher revenues to reduce public debt and the tax burden, emphasized Minister Marić.
>>> Croatian public debt fell to 78 percent of GDP last year, amounting to 283.5 billion kuna
Data is expected to show that public debt expressed as a share of GDP at the end of last year was 78 percent. In the past two years, it has been reduced by 5.8 percentage points.
In 2016, the general government deficit was 0.9 percent of GDP and was the lowest since this data began to be published.
– Our goal is to reduce public debt this year by an additional 2.5 to three percentage points and to continue such efforts in the coming years, added Marić.
Better than expected results
In the first quarter of this year, the budget results, according to him, are in line with the plan. Croatia aims for a general government deficit of 0.5 percent of GDP this year, with an economic growth rate of around 3.0 percent.
– For now, we are sticking to that plan. However, the fiscal results in 2016 and 2017 are better than expected, so we will continue to work in that direction, added the Croatian finance minister.
Analysts and the European Commission warn that structural reforms are being implemented slowly despite being key to stimulating economic growth and raising the credit rating, which is currently rated one notch below investment grade by two of the three major agencies.
>>> S&P raised Croatia’s rating, assessing that the government is making progress in addressing structural problems
They particularly highlight issues such as a subdued investment climate, inefficient and expensive public administration, slow judiciary, and losses in the health and pension sectors.
– There is no doubt that we need to address structural problems as we recently did in the road sector. The government will adopt a detailed annual reform plan next week, and the initial focus will be on improving the investment climate and the efficiency of the health sector and public administration, announces the finance minister.
Further reduction of the tax burden
He also notes that there is room for further reduction of the tax burden starting next year, following changes that came into effect last year and were focused on income and profit taxes.
– This year we are preparing a thorough analysis of options, and I can say that reductions could also include value-added tax (VAT), stated Marić.
>>> Z. Marić: There will be no changes to VAT this year
The government must refinance a bond issued on the domestic market amounting to six billion kuna and a bond issued on the foreign market amounting to 750 million euros this year. Both are due for payment in July.
– Our goal is to refinance the eurobond maturing and cover the remaining financing needs on the domestic market. We will likely first go with an international issuance by the end of the second quarter, says the Croatian finance minister.
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He believes that structural reforms should protect Croatia from a potential increase in interest rates in international markets.
– I believe that if we show determination in further implementing reforms and if we maintain fiscal discipline – and I am confident that we will – we can achieve an investment rating sooner than expected, said the minister.
– All of this also fits into our ambition to prepare the economy for the introduction of the euro, notes Marić.
