Political games in the country are visibly taking a toll in the financial markets
The price of political instability being paid in Croatia is rising. After the government postponed Euro bonds publication as investors demanded higher interest than Croatia was willing to pay, analysts of the large multinational bank Barclays have recommended to investors, in their new report on Croatia, to invest in Serbian and Hungarian securities in certain cases, Jutarnji.hr reports on June 9, 2016.
In a report indicatively titled “Croatia: shaken by brittle politics,” Barclays analysts estimates that world markets welcomed the formation of Tihomir Orešković’s government and data showing Croatia on a path of recovery after a six-year recession. However, the latest political turmoil, threatening the survival of this government and execution of reforms, have started taking a toll in the world of Croatian state finances. Hence they suggest to investors to exchange certain Croatian securities for those of Serbia and Hungary, depending on their due date. Serbian and Hungarian securities give equal yield, but those two nations have more stable governments.
Barclays reminds that Croatia is still faced with the lack of true reforms. This is seen in the fact that the public debt has been more than doubled in the long term crisis – from 39% in precrisis 2008 to 85,1% GDP in 2014 – used to finance a huge budget deficit.
Although fiscal deficit has been reduced to around 4% GDP in the last year, it is still high and further reduction requires reform. Additionally it mentions that the current parliament composition complicates the creation of new coalitions. Possible new elections might not necessarily bring about a significant change in the power balance on the political scene, Barclays analysts suggest.
“In the short term, the market looks on with scepticism and waits for a solution to executive authority,” says Đuro Njavro, dean of Zagreb School of Economics and Management. “However, not all is lost. Barclays analysts do see the Croatian securities due in 2022 as a good investment.”
