Croatian Government to cut budget deficit, public debt, up investments to spur growth to 3%

The Croatian PM, Tihomir Oreskovic, has said in an interview with Hrvatski Radio on Wednesday that the priority of the government was to reduce the budget deficit to a level closer to 3% of GDP (the EC puts it at 3.9% of GDP in 2016) and thus to curb the public debt growth. If the government succeeds, Croatia’s credit rating could be raised.

Oreskovic estimates that rating increase by only one notch would allow for interest savings on public debt of about HRK1.5bn that could be used on investments or further debt reduction. With regard to the budget plan for 2016, he has underlined that spending on some items will be increased, on others — reduced and reallocated to sectors where more value added can be achieved, but that the overall objective would be to increase spending efficiency in all departments. To this end, he has highlighted, the finance ministry has been negotiating with all sectoral ministries in order to find room for savings and efficiency gains. He has declined to elaborate on the plans of the cabinet with regard to wages in the public sector, pensions and social benefits.

Next, the government will aim to increase investments by better drawing EU funds, the PM has said. Oreskovic has also underlined that the government plans to activate programmes to the tune of EUR500m that would be aimed to support and encourage the development of SMEs so that together with higher investments on the back of the EU funds, stronger GDP growth of more than 3% (the EC puts it at 2.1% this and next years) could be achieved. The cabinet also plans to step up privatisation process of state-owned enterprises so that some EUR 500mn worth of resources are freed and used on projects that create added value. The PM has noted that the high indebtedness of the motorway operator HAC needed to be reduced and to this end a vignette system that could generate some HRK30bn in few years could be introduced, but has added that firstly all the possibilities needed to be analysed.

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