Fitch Ratings yesterday reaffirmed Croatia’s investment rating at BBB with a positive outlook, estimating that the recovery of the country’s tourism industry will support the economy at a time of slowing exports and that eurozone entry will mitigate financing risks.
Speaking to the press, Marić said citizens, enterprises and the government could be satisfied because the credit rating was maintained.
A very positive assessment, a very welcome report in these circumstances which gives us an incentive to continue all that we are doing, with a very likely positive unfolding of events in the remainder of the year as regards Croatia’s credit rating, he said.
Fitch revised down its projection of Croatian growth for 2022 from 4.4% to 3.3%, citing base effects, a sharp slowdown in household consumption as high inflation affects consumer spending, as well as the effects of Russia’s aggression on Ukraine.
Marić said that was understandable given that about ten days ago the government revised down its GDP growth forecast for this year to 3%.
In the fiscal part, Fitch’s report is in line with the government’s efforts, achievements and projections, the minister said, underlining that last year the deficit was reduced much more than expected and that this trend would continue this and in the years ahead.
As for potential risks for the rating’s trend, Fitch mentioned an increase of the government debt and a significant delay in Croatia’s eurozone accession.
“I’m deeply confident that none of that will happen. Actually, I’m sure of that,” said Marić.
He recalled that since 2016, the public debt-to-GDP ratio has been decreasing every year except in 2020. “That’s one of the basic characteristics and traits of this government’s fiscal policy and it will continue.”
Speaking of Croatia’s eurozone journey, Marić said convergence reports by the European Central Bank and the European Commission were expected early next month. He also mentioned the Maastricht criteria – exchange rate, price and interest rate stability, budget deficit and government debt.
Marić said the deficit and the government debt were the fiscal indicators which opened the prospect of introducing the euro to the greatest extent. “If we hadn’t consolidated public finance and done all that we have… we would have waited much longer.”
Inflation in April expected to accelerate further
Speaking of inflation, Marić said the data for April would likely show an additional acceleration of the average price rise rate, but without a significant deviation from the average.
In March, inflation in Croatia went up 7.3% and the government has forecast its growth for this year at 7.8%.
Under the Maastricht criteria, Croatia’s inflation over the past year should not exceed 1.5 percentage points in relation to the average inflation in three EU member states with the lowest inflation.
Marić said there were clear signals that the lower inflation rates in some member states, for example Greece, would be treated as deviation variables and that Croatia would meet this criterion, too.
He reiterated that Croatia planned to enter the eurozone on 1 January 2023 and that the final decision was expected by the first half of July this year.
At the moment, the introduction of the euro has a virtually negligible impact on inflation, he said, reiterating that in the last seven states which introduced the euro, the inflationary effect in the first year was between 0.2 and 0.4 pp on average.
Reforms as prerequisite for tax relief
Marić was also asked about a reform package proposed by the Croatian Employers Association which is aimed at raising the net pay and includes raising the non-taxable income and reducing pension and healthcare contributions as well as income tax.
In order to further reduce the tax burden on labour, it is necessary to create the prerequisites by reforming the pension system and especially healthcare, he said, adding that the basic intention of the government’s tak reform has been to reduce the tax burden on labour and profit.
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