Budget Surplus Brings About Reduction in Public Debt

Total Croatia News

The debt has been reduced to 81.9 percent of GDP.

At the end of June, Croatian public debt, according to the Croatian National Bank (HNB), amounted to 287.3 billion kunas or 81.9 percent of gross domestic product (GDP), which means it was down by 1.8 billion kunas compared to the end of last year, according to Raiffeisenbank Austria (RBA), reports tportal.hr on October 4, 2017.

The fall in public debt since the beginning of the year is a consequence of very favourable developments in the budget, which recorded a slight surplus in the first half of the year, according to RBA analysts.

They add that, in the period, the share of public debt to GDP fell by 1.8 percentage points, which can also be attributed, in addition to the reduction of the state’s debts, to the continued growth of the economy. However, compared to the end of the second quarter last year, the public debt rose by 1.6 billion kunas or 0.6 percent.

The RBA analysts explain that this is a reflection of the growth of the public debt’s internal component, which reached 183.6 billion kunas at the end of June, up by 9.2 billion kunas or 5.3 percent compared to the same period last year. In the same period, the external component of public debt decreased by 7.5 billion kunas or 6.7 percent, to about 104 billion kunas. Thus, the share of the internal component of the public debt rose to 63.9 percent at the end of June, while it was 61.1 percent in the same period last year.

“The growth of the internal component is a consequence of high liquidity and reasonably favourable borrowing conditions in the domestic market, supported by expansive monetary policies,” the RBA analysts say, adding that this resulted in lowering the country’s external vulnerability to foreign markets.

They also say that, regardless of the relative improvements in public debt trends, the high cost of debt servicing will put pressure on public finances in the next period as well. “Taking advantage of favourable economic conditions as an opportunity to achieve budget surpluses and reduce public debt would create a wider space for anti-cyclical actions in times of negative economic trends,” the RBA analysts say.

But, they also believe that, in the conditions of economic growth and robust budget revenues, the general government deficit in 2017 could be lower than the initial projections, reaching about one percent of GDP. “Consequently, Croatia should, with a solid primary surplus, record a further fall in the public debt to GDP ratio,” concluded the analysts.

Translated from tportal.hr.


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