Croatian Economy: Would HDZ Prefer Elections to Take Place Tomorrow?

Lauren Simmonds

As Novac/Frenki Lausic writes on the 27th of April, 2020, for HDZ, when it comes to the Croatian economy, the state budget and other standards that regard citizens, it would be best to hold parliamentary elections now.

With each new passing day and month, even if we go with the baseline scenario, where the recovery of the Croatian economy would begin to be felt in the second part of the year, and the coronavirus pandemic would be kept under control, economic disadvantages on all levels would be visible.

The business results of Croatian companies will be much worse, the state budget deficit and public debt will grow radically, and the wallets of most citizens will grow even more empty. Last year, the Republic of Croatia achieved a budget surplus of 0.4 percent, and Zdravko Maric, the finance minister, said in preliminary estimates that the borrowing of a massive 45 billion kuna would be needed in the first three months of the coronavirus crisis in order to cover current expenditures of the enfeebled Croatian state budget.

Executives from the Croatian National Bank (HNB/CNB) said that each month with the epidemiological measures we’ve had so far in place, brings about a three percent drop for the Croatian economy. The current uncertainty is so high that the risks are largely unaccountable. In such a situation, pragmatism also requires HDZ to reduce this uncertainty to an absolute minimum, which can now, at least as far as HDZ as a party is concerned, can only be achieved through rapid elections. The July elections, if the party wins, gives HDZ the opportunity to make cuts on the expenditure side of the state budget with the power of a new electoral victory, and with generally less resistance.

Furthermore, such a strategy also enables the party not to make any painful decisions before July rolls around, especially those concerning the salaries of employees in the state and public sectors. If we remain with ”only” a 45 billion kuna hole blown in the budget for the first three months of the coronavirus crisis, we should know that this represents 31 percent of the state budget and 11.2 percent of Croatia’s GDP, if we calculate the GDP compared to the 2019 result, when amounted to 400 billion kuna.

However, if we know that with the baseline scenario, real GDP will drop, according to various calculations, by between seven and ten percent, then the deficit ratio in GDP in 2020 will be higher than 11.2 percent. This would also mean that public debt would reach close to 84 percent of GDP, the last time that was the case was back in 2015. In a less optimistic scenario, Croatia’s GDP decline would be greater than ten percent and would go towards fifteen percent (and more) than that. The budget deficit would go up to 60 billion kuna and public debt would soar above 90 percent of GDP. In just one year. It goes without saying that this would be devastating beyond words for the Croatian economy.

A quick look at the numbers: 

A 45 billion kuna deficit in the state budget in the first three months of the coronavirus crisis.

84 percent of GDP could account for public debt in 2020 (up from 73 percent of GDP in 2019) even with a baseline (optimistic) scenario.

31 percent of the central government’s budget amounts to 45 billion kuna

11.2 percent of GDP (from 2019) amounts to 45 billion kuna.

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