External Debt to GDP Ratio Falls Below 100% After Many Years

Total Croatia News

This is the lowest level of external debt since 2008.

Croatia’s gross external debt in December 2016 declined by 2.1 billion euros to 41.7 billion euros, and its share in GDP fell to 91.4 percent, which is 12 percentage points lower than at the end of 2015. This is the first fall of the level of debt below 100 percent of GDP since 2008, announced the Croatian Chamber of Commerce (HGK), reports Jutarnji List on April 4, 2017.

In 2016, compared to the year before, the largest decrease in absolute terms was recorded in the debt of monetary financial institutions (1.6 billion euros), followed by other domestic sectors (1.1 billion euros), general government (1.1 billion euros) and central bank (0.3 billion euros). The only category in which external debt increased were direct investments (0.3 billion euros).

At the end of last year, the largest part of the total external debt (36.3%) pertained to other sectors, 35.5% to general government, 13.8% to direct investments, 10.9 percent to other monetary and financial institutions, and 3.4% to the central bank.

During December, the deleveraging was the most pronounced in the sector of other monetary financial institutions, followed by general government and other sectors. Thus, the debt of other monetary institutions in December last year was 25.7 percent lower than in the same month last year, which is the 56th consecutive month in which an annual decrease of debt has been recorded.

The primary reason for this trend is the deleveraging of the banking sector in circumstances of high liquidity of the domestic market and still restrained lending to companies and individuals, according to HGK. At the same time, the reduction of foreign debt of other domestic sectors, especially companies, is continuing. The deleveraging trends are complemented by general government which, due to a sharp reduction in the budget deficits, has less need for financing. Its gross external debt has been falling for the last ten months.

Despite the positive trends in the movement of gross external debt, Croatia is still a highly indebted country, HGK warns. Among comparable countries, lower levels of foreign debt last year were recorded in Romania (54.6 percent of GDP), Bulgaria (72.2 percent), Poland (74.6 percent), the Czech Republic (74.8 percent) and Slovakia (91.1 percent), while slightly higher levels were recorded in Hungary (96.1 percent) and Slovenia (109 percent of GDP).

“Among comparable countries, Croatia in the last year recorded the largest decline in the share of gross external debt to GDP (by 12 percentage points) due to the simultaneous reduction of debt and the increase in GDP. This year, we expect a continuation of favourable trends in the movement of the gross external debt, which will have positive impact on the possibility of improving the credit rating of Croatia and thus enable cheaper borrowing,” said director of the HGK Department for financial institutions, business information and economic analysis Zvonimir Savić.


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