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INTERVIEW: Croatia on track for 2023 eurozone entry, public debt seen below 3% by end-2021

INTERVIEW: Croatia on track for 2023 eurozone entry, public debt seen below 3% by end-2021 Croatian finance minister Zdravko Maric/Photo: Croatian government

SOFIA (Bulgaria), September 7 (SeeNews) - Croatia is on track to meet its goal to join the euro area by 2023 despite the adverse impact of the pandemic on its finances, as public debt is expected to return to the Maastricht requirements by the end of the year, finance minister Zdravko Maric told SeeNews.

"[Adopting] the euro is one of our key strategic orientations towards the further integration into European institutions. The benefits which are long-lasting, such as the elimination of ethic risk, reduction of private transaction risk and related risk, are much bigger than potential threats," Maric told SeeNews on the sidelines of the FOCUS ON CROATIA business networking event organised by SEEBDN in Vienna on Monday.

The Adriatic country of 4.4 million people, which has been a member of the European Union since July 1, 2013, last year entered the EU's Exchange Rate Mechanism (ERM-2), seen as the training ground for euro adoption. Earlier this year, prime minister Andrej Plenkovic said the country aims to join the eurozone in January 2023.

"Prior to Covid, four years in a row, Croatia was lowering its public debt three times faster than the Maastricht requirements. We have been running budgetary surpluses three years in a row, so we could tick each of these boxes," Maric said.

"However, Covid had implications on our fiscal stance. Our deficit went above 3% [of GDP]. This year it is projected to be 3.8% but next year we are already back inside Maastricht's 3% requirements. Even this year, we are planning to decrease our public debt to satisfy the Maastricht requirements," he added.

This year, Croatia's public debt is expected to fall by roughly 2.0 – 2.2 pp of GDP and by 3 pp per year on average in the next three year, Maric went on to say.

 

THREE-PILLAR DEBT MANAGEMENT STRATEGY, FOCUS ON EXPENDITURES

"We see public debt management as a three-pillar strategy – one pillar is GDP growth, the other one is fiscal consolidation, and the third one is activation of state assets including privatisations," Maric explained.

The government targets a budget deficit equivalent to 3.8% of GDP this year, with GDP growth projected at 5%.

"Currently, what we are seeing is a better-than-expected execution of our revenues due to a better-than-expected GDP. Originally, we planned GDP growth for the year as a whole in the area of around 5%, currently last data on the second quarter and some other macroeconomic indicators are suggesting that it could be even in the area of 7%," Maric said.

The finance ministry's approach is to tap global markets to finance and refinance bonds with international matutiries.

"This year we are not planning any international issuances; however next year, when we have a few maturities in the euro bond market, we will do it there," he said. "The domestic market is also very strong, very liquid, with a big interest for our bonds."

In July, the finance ministry issued a domestic bond worth 9 billion kuna ($1.4 billion/1.2 billion euro) maturing in 2028.

 

LOOKING TO FURTHER CUT SOCIAL CONTRIBUTIONS

After cutting corporate tax and personal income tax, as well as VAT for certain goods such as fish, meat, vegetables and electricity, the finance ministry is exploring the options to reduce healthcare and pension contributions, Maric said.

"Our plan is by the mandate's end to continue with lower taxes and I really hope that we will be able to find some adequate maneouvering space to further reduce some of the social contributions."

He, however, was quick to add that fiscal space is already very limited in the healthcare sector and the pension system.

 

NO FIREPOWER FOR PRIVATISATIONS NOW

Although sales of state-owned stakes in Croatian companies is part of the government's long-term plans, they are not on its current agenda

"We didn’t have the firepower to sell anything in 2016, nor today," Maric said.

However, the finance ministry believes that the introduction of any form of private capital could strengthen the state-owned enterprises and their corporate management, and this is a process it wants to relaunch, starting with minority stakes, the finance minister stressed. Certain sectors that are considered to be strategically important for the country will be excluded from privatisation.

Croatia's commitments under the ERM-2 and the EU's Recovery and Resilience Facility (RRF) also envisage improved management of public entities, without mentioning specific sectors or companies, he added.

 

CROATIA'S COVID RECOVERY PLAN

In July, the European Commission approved a grant of 6.3 billion euro ($7.5 billion) to support Croatia's Covid recovery plan under the RRF.

"More than half of the entire envelope is business related, both on the private and public side," Maric said, adding that it aims to stimulate an overall improvement in economic performance and the environment for the business community to invest and employ.

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 buzz words, Maric noted, adding that special attention will be paid to education and R&D.

The programme will look to back sectors such as IT, which is closely related to other sectors such as transport. As an example of a project that will receive backing, Maric pointed to the development of an autonomous vehicle by local car maker Rimac.

(1 euro = 7.477 Croatian kuna)

YOU CAN READ THE FULL TEXT OF THE INTERVIEW WITH ZDRAVKO MARIC IN THE FORTHCOMING EDITION OF SEE TOP 100, OUR RANKING OF THE BIGGEST COMPANIES, BANKS AND INSURERS IN SOUTHEAST EUROPE, DUE IN OCTOBER.

 

 

 

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