Plenković: The surplus of the general government confirms the decisive policy of the Government

The surplus of the general government in Croatia in 2017 amounted to 2.7 billion kuna, marking the first surplus since these data have been tracked, and analysts indicate that this is due to the results of extrabudgetary users and public enterprises, as well as an increase in tax revenues.

The report on the excessive budget deficit procedure and the level of general government debt, published by the Croatian Bureau of Statistics (DZS) on Friday, shows that in 2017, the surplus of the consolidated general government amounted to 2.75 billion kuna, or 0.8 percent of GDP, while the previous year recorded a deficit of 3.2 billion kuna, or 0.9 percent of GDP.

This is the first surplus of the general government since 2002, when these data have been tracked.

– Total revenues of the consolidated general government last year amounted to 167.2 billion kuna, marking an annual increase of 5.6 billion kuna or 3.4 percent. At the same time, total expenditures, realized at 164.4 billion kuna, recorded a slight annual decrease of 472 million kuna or 0.3 percent, analysts from Raiffeisenbank Austria (RBA) state in their commentary on the DZS report.

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They add that compared to 2016, the general government budget balance improved by 6 billion kuna or 1.7 percentage points of GDP last year.

Positive changes last year are the result of several key factors, they explain.

– Namely, the report (DZS) indicates that the fiscal surplus in 2017 was most significantly influenced by a substantial improvement in the financial results of extrabudgetary users and public enterprises, as well as an increase in tax revenues, primarily from VAT, which amounted to 48.4 billion kuna, the analysis states.

Growth in VAT revenues

Thus, VAT revenues exceeded the planned 46.2 billion kuna and increased by more than 3 billion kuna or 6.8 percent year-on-year. This “is a result of positive economic trends supported by a record tourist season,” analysts from RBA state.

Furthermore, revenues from production and import taxes also recorded a significant increase of 3.7 billion kuna or 5.4 percent, reaching 71.6 billion kuna.

– Along with a slight nominal decrease in total general government expenditures year-on-year, the contribution to the fiscal surplus came from lower interest expenditures, RBA analysts note.

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Last year, interest expenditures amounted to 9.76 billion kuna, which is 9.7 percent less than the previous year. The DZS report states that a significant impact on the surplus amount in 2017 was the renewed decline in the state budget balance compared to the previous year, from 3.389 billion kuna to 2.29 billion.

– The latter resulted in a significant increase in the primary balance of the general government, which recorded a surplus for the third consecutive year, RBA analysts state.

Thus, the primary surplus increased from 7.5 billion kuna recorded in 2016 to 12.5 billion kuna or 3.7 percent of GDP last year.

Share of public debt in GDP lowest since 2012

The DZS also reported that at the end of 2017, Croatia’s public debt amounted to 283.3 billion kuna, with the share of that debt in GDP falling to 78 percent, its lowest level since 2012, when it was 69.4 percent of GDP.

– Clearly, the improvement in the fiscal balance has opened up space for significantly lower borrowing needs of the state, RBA analysts note.

However, the debt of 283.3 billion kuna is higher by 1.6 billion kuna or 0.6 percent compared to the end of 2016.

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However, as the economy grew faster last year, by 2.8 percent compared to 2016, the share of public debt in GDP also fell, by 2.6 percentage points compared to the end of 2016, when it was 80.6 percent of GDP.

RBA analysts state that, in addition to the fiscal surplus and improved macroeconomic fundamentals, the lower public debt was also contributed by the strengthening of the kuna against the euro.

– Although we do not yet have fiscal statistics for the first months of 2018, the continuation of economic growth suggests that revenues should be generous or at least in line with the Ministry of Finance’s plan. On the other hand, if expenditures are realized according to plan, we can speak of a continuation of favorable fiscal trends, concludes the RBA analysis.

Plenković: Croatia has earned more than it has spent for the first time

Prime Minister Andrej Plenković stated that Croatia achieved a unique result in public finances last year and that for the first time it earned more than it spent.

– Today it has been officially confirmed what we previously announced, that we achieved a unique result in public finances last year, and that Croatia has earned more than it has spent for the first time, the Prime Minister stated in a press release.

He emphasized that this is the first surplus achieved since public finance statistics have been tracked according to European statistical methodology.

– This is a result above expectations, but in line with our responsible fiscal policy management, he added.

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This specifically means, as stated in the press release, that the surplus achieved in 2017 reduced the debt of the average Croatian citizen by 780 kuna. In contrast, in 2015, it increased the average citizen’s debt by about 2,800 kuna, and in 2016 by 655 kuna.

Prime Minister Plenković stated that this financial result confirms the decisive policy of the Government in realizing one of its strategic goals, which is the consolidation of public finances and the reduction of public debt, which in 2017 was also confirmed by Croatia’s exit from the excessive budget deficit procedure.

Incentive for even better results

The Prime Minister emphasized that the efforts of the Government have already been recognized by international financial institutions and rating agencies, which for the first time since 2004 raised Croatia’s credit rating.

– I am confident that this result will be a further incentive for achieving even better results in managing responsible financial policy and that it will soon result in further increasing our credit rating to investment grade, which will further stimulate the growth of the Croatian economy and the standard of living of Croatian people. Croatia continues with reforms while strengthening the competitiveness of the economy, increasing employability, and ensuring the sustainability of public finances, Plenković stated.

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Krištof: Surplus due to increased tax revenues and better results of public enterprises

Director of the Croatian Bureau of Statistics (DZS) Marko Krištof stated that the surplus of the general government in 2017 was primarily achieved thanks to the increase in tax revenues, as well as a significant improvement in the results of extrabudgetary users and public enterprises.

As Krištof noted, the largest surplus was achieved in the central government sector, amounting to 2.5 billion kuna. Social security funds also recorded a surplus, while local government recorded a deficit of 136 million kuna.

Krištof highlights the significant increase in tax revenues as the main reason for the surplus generated last year, with the amount of collected production and import taxes jumping by 5.4 percent compared to 2016. At the same time, he notes, there was also a significant improvement in the financial results of extrabudgetary users and public enterprises.

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Additionally, the general government sector recorded a decline in investments, which amounted to 9.8 billion kuna, 13.1 percent less than in 2016.

Krištof notes that the investment data for last year is provisional and will certainly change in the October notification, as not all final data were available at the time of compiling the report.

The achievement of the surplus was also influenced by a reduction in interest expenditures, which has occurred for the second consecutive year, and finally, less significant increases in other revenue categories.

This is also the third consecutive year that Croatia has a primary surplus, which is when the amount of interest is deducted from the budget. Thus, in 2015, it amounted to 114 million kuna, in 2016 to 7.5 billion kuna or 2.2 percent of GDP, and in 2017 to 12.5 billion kuna, or 3.7 percent of GDP.

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The main reason for the increase in the general government’s debt level is the new borrowing of the state from repayments in 2017.

At the same time, Krištof states, the reduction of debt was significantly contributed by the reduction of central government debt from loans. In the case of local government, a significant decline occurred in loans and debt securities, which were fully repaid, and local government no longer has debt from that instrument.

Krištof notes that the entire series of debt has been revised as the Croatian National Bank (HNB) made improvements in terms of better accounting and consolidating part of the debt, which led to its reduction.