Croatia on track for euro zone entry in 2023, public debt below 3% by end of 2021
SOFIA (Bulgaria), Sept. 7 (SeeNews) – Croatia is on track to meet its goal of joining the euro area by 2023 despite the pandemic’s negative impact on its finances, as public debt is expected to return to low levels. Maastricht’s demands by the end of the year, Finance Minister Zdravko Maric told SeeNews.
“[Adopting] the euro is one of our key strategic orientations for further integration into European institutions. The lasting benefits, such as the elimination of ethical risk, the reduction of private transaction risk and associated risks, outweigh the potential threats, ”Maric told SeeNews on the sidelines of the networking event. FOCUS ON CROATIA business organized by SEEBDN. in Vienna on Monday.
The Adriatic country of 4.4 million inhabitants, which has been a member of the European Union since July 1, 2013, entered the EU’s exchange rate mechanism (ERM-2) last year, considered as the training ground for the adoption of the euro. Earlier this year, Prime Minister Andrej Plenkovic said the country intended to join the eurozone in January 2023.
“Before Covid, four years in a row Croatia was reducing its public debt three times faster than Maastricht’s demands. We had budget surpluses three years in a row, so we could tick each of those boxes,” Maric said.
“However, Covid has had implications for our budget position. Our deficit has risen above 3% [of GDP]. This year it should be 3.8%, but next year we are already back in the Maastricht 3% demands. Even this year, we plan to reduce our public debt to meet the Maastricht demands, “he added.
This year, Croatia’s public debt is expected to decline by around 2.0-2.2 pp of GDP and an average of 3 pp per year over the next three years, Maric continued.
THREE-PILLAR DEBT MANAGEMENT STRATEGY, FOCUS ON EXPENDITURE
“We see public debt management as a three-pillar strategy – one pillar is GDP growth, the other is fiscal consolidation and the third is the activation of state assets, including privatizations. “, explained Maric.
The government is targeting a budget deficit equivalent to 3.8% of GDP this year, with GDP growth projected at 5%.
“Currently, we are seeing better than expected execution of our revenues due to better than expected GDP. Originally, we expected GDP growth for the full year in the area of approximately 5%, currently the latest second quarter data and some other macroeconomic indicators suggest it could even be around 7%, ”Maric said.
The approach of the Ministry of Finance is to tap global markets to finance and refinance bonds with international maturities.
“This year we don’t plan any international issuance, but next year when we have some maturities in the euro bond market, we will do it there,” he said. “The domestic market is also very strong, very liquid, with great interest in our bonds.”
In July, the Ministry of Finance issued a domestic bond worth 9 billion kuna ($ 1.4 billion / 1.2 billion euros) due in 2028.
SEEK TO FURTHER REDUCE SOCIAL CONTRIBUTIONS
After reducing corporate tax and personal income tax, as well as VAT on certain products such as fish, meat, vegetables and electricity, the finance ministry is exploring options to reduce contributions to health care and pensions, Maric said.
“Our plan is by the end of the mandate to continue lowering taxes and I really hope we will be able to find adequate maneuvering space to further reduce some of the payroll taxes.”
He was quick to add, however, that fiscal space is already very limited in the health sector and the pension system.
NO FIRE POWER FOR PRIVATIZATIONS NOW
Although sales of state-owned stakes in Croatian companies are part of the government’s long-term plans, they are not on the current agenda.
“We didn’t have the firepower to sell anything in 2016, nor today,” said Maric.
However, the Ministry of Finance believes that the introduction of any form of private capital could strengthen public enterprises and their business management, and it is a process that it wants to revive, starting with minority stakes, stressed. the Minister of Finance. Certain sectors considered to be strategically important for the country will be excluded from privatization.
Croatia’s commitments under ERM-2 and the EU’s Recovery and Resilience Facility (RRF) also envision better management of public entities, without mentioning specific sectors or companies. -he adds.
CROATIA COVID RECOVERY PLAN
In July, the European Commission approved a grant of 6.3 billion euros ($ 7.5 billion) to support Croatia’s recovery plan against Covid under the RRF.
“More than half of the total envelope is tied to business, both on the private and public side,” said Maric, adding that he aims to stimulate an overall improvement in economic performance and the environment for the community of business invests and employs.
Support will also be allocated to the recovery from the 5.3 magnitude earthquake that hit the country in 2020.
“Digital” and “green” are the buzzwords, noted Maric, adding that special attention will be paid to education and R&D.
The program will seek to support sectors such as IT, which is closely linked to other sectors such as transport. As an example of a project that will receive support, Maric highlighted the development of an autonomous vehicle by local automaker Rimac.
(1 euro = 7.477 Croatian kuna)
YOU CAN READ THE FULL TEXT OF THE INTERVIEW WITH ZDRAVKO MARIC IN THE NEXT EDITION OF THE SEE TOP 100, OUR RANKING OF THE LARGEST COMPANIES, BANKS AND INSURERS IN SOUTHEAST EUROPE, DURING OCTOBER.