Gross foreign debt at the end of the first quarter fell by 7 percent to 40.6 billion euros

Gross foreign debt of Croatia amounted to 40.6 billion euros at the end of the first quarter, which is 3.2 billion or 7.4 percent less than in the same period last year, and the share of this debt in GDP could fall below 80 percent by the end of the year, according to a new analysis by Raiffeisenbank Austria (RBA).

At the end of the first quarter, the share of gross foreign debt in gross domestic product (GDP) was 82.1 percent, according to RBA’s review of recently published data from the Croatian National Bank.

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While at the end of the first quarter the foreign debt was significantly lower compared to the same period last year, compared to the end of 2017, the debt increased by 558 million euros or 1.4 percent.

A significant contribution to the growth came from the increase in the central bank’s liabilities on short-term loans, which amounted to 1.9 billion euros at the end of March, 21 percent higher, the analysis published on Thursday states.

On the other hand, data for the end of March confirm the deleveraging towards foreign creditors by other domestic sectors, as private non-financial companies, non-profit institutions serving households, and households recorded a reduction in debt compared to the end of last year.

>>>Deleveraging: Gross foreign debt of Croatia fell to 40 billion euros

RBA analysts also emphasize that in the first three months of this year, the deleveraging of the state towards foreign creditors continued.

Gross foreign debt of the general government amounted to 14.1 billion euros at the end of March, which is 1.5 billion euros or 9.5 percent less than in the same period last year.

“The share of gross foreign liabilities of the state in total foreign debt remains around 35 percent,” RBA analysts point out.

They note that other monetary institutions (banks) also recorded a year-on-year decline of 11.9 percent, with their gross liabilities to foreign creditors amounting to 4 billion euros at the end of March.

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High annual rates of decline in foreign liabilities of these institutions have been recorded for many months. Banks have been deleveraging due to relatively cheaper domestic deposits, high liquidity, and still modest demand for loans, the analysis states.

RBA analysts expect the trend of declining gross foreign debt on an annual basis to continue throughout 2018, thanks to the reduction of indebtedness in all key sectors.

Given the abundance of liquidity in the system in a low-interest-rate environment, it is likely that the corporate segment will continue to renew part of its foreign obligations by borrowing in the domestic market, the analysis states.

>>>RBA: Gross foreign debt fell by more than 7 percent, to 39.4 billion euros

It is reminded that at the beginning of June, Croatia issued a bond worth 750 million euros on the foreign market, but since the same amount was due, the impact on the amount of the state’s foreign debt in the second quarter is neutral.

With the expected economic growth, we anticipate that the ratio of foreign debt to GDP could drop below 80 percent by the end of the year, conclude RBA analysts.