Fiscal Policy Commission Supports Measures to Alleviate Impact of Pandemic

ZAGREB, September 22, 2020 – The Fiscal Policy Commission has supported the government’s fiscal policy measures, warning that due to the high level of public debt and low potential growth rates one should focus on measures to alleviate the impact of the pandemic and help boost the economy’s medium and long-term potential the most.

The Commission determined on Tuesday that macroeconomic projections for this year, which represent the basis of the revised budget, were being achieved albeit with a slightly changed dynamic.

The economic decline in Q2 will be partially offset by economic results in Q3 which are slightly better than expected, however, contrary to budget projections, the risk of the pandemic continuing into the second half of the year with a faster dynamic postpones normalisation of the system and stronger economic recovery for the period to come.

In such conditions the projected economic decline of 9.4%, on which the estimate of the budget revenue is based, could become a reality, but what worries are increased risks to planned recovery in 2021, the Commission says.

According to data on budget execution in the first half of the year, despite the measures taken, such as temporary tax write-offs and government subsidies, the budget revenue is good, primarily owing to the good results of the first part of the tourist season, which could help the projection of the budget revenue for the entire year 2020 become a reality as well, the Commission says.

On the other hand, the government’s fiscal measures regarding spending have resulted in an increase in budget expenditures that are slightly higher than expected. In the second half of the year, most of those fiscal measures are expected to be phased out, which would reduce the pressure on spending, the Commission says.

It warns that at the moment nobody can forecast how long the pandemic will last, and the longer it lasts, the longer the existing measures could be in force or even new ones regarding budget expenditures could be introduced.

Despite such uncertainty, the budget deficit forecast could still be achieved, it says.

The consolidated budget deficit in H1 was HRK 17.9 billion, or 4.9% of the country’s GDP.

In the first half of 2020, the budget revenues dropped 7.2% to HRK 60.4 billion while budget expenditures increased by HRK 10.1 billion, or 15.2% to HRK 77.1 billion.

When extra-budgetary users and local and regional government units are added, the budget deficit amounts to HRK 17.9 billion or 4.9% of GDP.

H1 GDP was down 7.8% in real terms from GDP in the same period of last year.

 

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