Important financial meetings with Croatia’s creditors in Austria for PM-designate Tim.
The financial elite has chosen the picturesque town of Kitzbuhel, a famous ski resort in Austria, for this year’s first gathering on investments in East and Southeast Europe. In addition to many government representatives, bankers and creditors to governments from Southeast Europe, the meeting will for the first time include Croatian Prime Minster-designate Tihomir Orešković, who will be accompanied by Boris Vujčić, Governor of the Croatian National Bank, reports Vecernji List on January 13, 2104.
Both the Croatian National Bank and HDZ have confirmed that they will meet with creditors who own part of Croatian public debt. Orešković has reportedly decided to go to Kitzbuhel at the urging of the Governor, who is a regular guest of the conference which is annually organized in January.
The Prime Minister-designate will return to Zagreb on Friday when he will continue with the meetings on forming a government. Vujčić will be one of the speakers at the conference, while Orešković will have one-on-one meetings with twenty of the major owners of Croatian government bonds. Mid-January is a usually a time when S&P, one of the three major ratings agencies, publishes its ratings of Croatian debt, which is currently two notches below investment level, with a negative outlook. However, it is believed that credit agencies will wait for the new government to make first decisions and propose the new budget before deciding whether to change the credit rating.
HDZ says that the PM-designate has prepared a presentation for investors so they will probably be better informed about the first moves of the new government than Croatian citizens, who are still waiting for more details on the future government’s economic policies. Orešković has already announced that the recommendations made by the European Commission and the World Bank show the way which should be followed, and the Croatian National Bank believes that the gathering in Kitzbuhel is an ideal opportunity for Orešković to hear firsthand what expectations the investors have from Croatia.
Also, this will be a chance for him to present the new government, since the unusual way of forming the government and the parliamentary majority has created a bit of confusion with investors. This year, the budget will need to refinance about 17 billion kuna of old debt and, if the deficit remains at about ten billion kuna, that would mean that the budget would have to borrow approximately four billion euros, not including other public entities connected with the state, such as Croatian Highways, Croatian Bank for Reconstruction and Development, Croatian Railways and others. Next year, more than 20 billion kuna of debt will have to be repaid, so 2017 will be an extremely challenging year, especially if interest rates increase.
The value of CDS spreads for Croatia (which show the level of bankruptcy risk of a country) is around 350 points, which is two times more than for Romania or Hungary, the first two countries behind Croatia by CDS spreads and the interest rates paid on government debt.
Recent monetary policies of the European Central Bank will facilitate the flow of money to Croatia, but there could be problems if the new government were to try to experiment and thus jeopardize the financial stability of the country. The joint appearance by the PM-designate and the Governor will be good news for the Croatian monetary authority as well, since the post of the Governor became the focus of some of the postelection political negotiations.
