Recovery and Restart of the Economy Means Significant Growth in Foreign Debt

Gross foreign debt of 41.1 billion euros is 0.6 percent higher compared to the previous month, while it is lower by 2.8 billion euros or 6.5 percent compared to January of last year, analysts from RBA state in their review of the recently published data from the Croatian National Bank (HNB). However, this debt, which includes the foreign debt of the general government, the central bank, other monetary financial institutions, and other domestic sectors, is expected to rise this year.

– Due to the newly emerged and unexpected situation related to the coronavirus pandemic, which has caused a global standstill as well as a slowdown in the domestic economy, we expect a deterioration in the indicators of Croatia’s external vulnerability – the RBA analysis published on Tuesday states.

Analysts from the bank expect a return of the current account balance of the balance of payments to negative territory for the first time since 2013, as well as an increase in gross foreign debt in nominal and relative terms.

– The recovery and resumption of economic activity, along with high financing needs, will lead to an increase in foreign indebtedness across all key sectors – the analysis states.

In order to finance measures to assist the economy, which is under pressure from the coronavirus crisis, the government recently increased revenues from financial assets and borrowing in the budget rebalancing from 30.5 to 63.4 billion kuna. Planned borrowings are set for both domestic and foreign markets. Due to the increase in debt and the expected sharp decline in the economy, the share of foreign debt in GDP will rise.

– A strong decline in economic activity will affect the increase in the share of gross foreign debt in gross domestic product (GDP), which could approach the level of 90 percent. On the other hand, the continuation of expansive monetary policies by leading central banks through low interest rates will partially mitigate the rise in the costs of foreign borrowing and thus act in a positive direction – conclude RBA analysts.

Gross foreign debt at the end of 2019 amounted to 40.9 billion euros, which constitutes 75.7 percent of GDP

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